Top picks in 2 real estate stock sectors to buy as brokerage stocks

“With cash flow generation improvement, realty developers have brought down debt levels, enabling them to reduce interest cost (which averaged 9mFY23 as compared to 10% during FY22) despite rising interest rates. 7.5% of the collection). ,” the note said.

They have also increased capex on business development (19% of collections during 9mFY23 as compared to 12% during FY22) and free cash flow generation is highest in case of DLF (both in Q3 FY23 as well as in 9mFY23); it remains his top stock pick In the realty space, Edelweiss said.

While high interest rates are a concern, the brokerage house believes that realty stocks remain attractive from a medium-term perspective given the increasing consolidation.

“Companies with large land banks and strong cash flows such as DLF (BUY) and Macrotech Developers (BUY) may rerate going forward. DLF continued to enjoy the highest operating surplus among realty developers during 9mFY23, followed by Macrotech (Lodha). On an average, developers spent ~7.5% of their collections on interest payments during 9mFY23 (10% during FY22); Purvankara, Shriram Properties (SPL) and Lodha had relatively higher debt burdens, with larger interest outflows than their peers,” the note said.

“Developers have also driven land related capex with Godrej Properties (GPL) leading the sector (around 49% of collections for GPL in 9mFY23); Shobha, on the other hand, had a land inflow during this period. Free cash flow generation was highest for DLF, followed by Lodha; GPL continued to post the largest cash flow losses, mainly due to its higher land capex,” the brokerage said.

The views and recommendations given above are those of individual analysts or broking companies and not of Mint.