[Tmdl.edu.vn] The Motilal Oswal Financial services in its report on 1QFY23 results suggests that the YoY performance of the top 12 listed companies looks optically strong on account of a low base. Pre-sales fell 16% QoQ due to seasonality.
As 1QFY22 was a washout, most companies have achieved the bulk of their targeted incremental growth for FY23 in 1Q, with managements confident of achieving double-digit growth in the fiscal, says the report.
Except for LODHA, PEPL (Prestige Estates Projects Ltd), and SOBHA, launches from the top 12 developers were relatively moderate. Barring the strong response to a few small launches, pre-sales had a higher share of sales from ongoing projects, led by sustained sales momentum across its ongoing portfolio.
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After witnessing a sharp uptick in construction cost until 4QFY22, companies saw some moderation in inflation as the price of key commodities saw a healthy correction. While minor price hikes have already been taken to mitigate the cost impact, companies will be on the lookout for gradual (5-8%) price hikes across the portfolio.
In a rising interest rate scenario, managements see housing demand remaining strong, and expect the impact of rising mortgage rates to remain transient. Moreover, certain large developers have introduced schemes like fixed EMIs for two years and deferred payment schemes to mitigate the impact of higher EMIs.
The Motilal Oswal report says mortgage rates have seen a sharp uptick in the past few months, but the starting point was the lowest level India has ever witnessed. The impact of an increase in home loan rates appears transitory as they remain way below the levels witnessed during the previous cycle.
[Tmdl.edu.vn] RBI data shows no tangible impact of rate hike on demand for home loans
Despite further expectations of an increase in interest rates, most companies maintain their healthy growth guidance provided after the 4QFY22 earnings.
PEPL is now targeting pre-sales of INR120b (v/s its earlier guidance of sustainingINR100b). SOBHA is confident of achieving a value growth of 15-20% as against its low double-digit guidance earlier.
While DLF maintains its sales target of INR80b, the report expects it to breach the same comfortably. Similarly, MLIFE is in a position to achieve annual bookings of INR25b, before the stated timeline of FY25. The same for other companies remains over 25% in FY23.
Companies are diversifying their market presence and over the last few quarters, one common theme that has emerged among listed developers is the attempts by managements to diversify their presence and bolster growth by foraying into newer markets.
While LODHA and PEPL have forayed into each other’s core market, GPL (Godrej Properties Limited) has closed a few opportunistic deals in new cities (Sonipat and Nagpur), which are in the periphery of its core markets.
OBEROI continues to scout for opportunities beyond Mumbai. SOBHA and BRIGADE intends to further firm up its presence in NCR/Hyderabad.
LODHA entered the Bengaluru market by signing one JDA project with a GDV of INR12b. It reiterated its FY23 pre-sales guidance of INR115b (up 27% YoY), of which residential will contribute INR105b (up 24%).
While rising interest rates is likely to have a sentimental impact on the sector in the near term, in a scenario with high construction costs and the cost of capital, and constrained industry growth, larger developers will further consolidate their market share.
The report says it prefers players with an ability to generate robust cash flow over the next three-to-four years and those investing in developing their pipeline, which will provide further growth visibility and lead to a re-rating.
(The writer is CEO, Track2Realty)
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