Average days of inventory fell from a 60-month high in fiscal 2017 to 28 months in 2021.
When the bankruptcy happened in 2016, the financial system was already suffering from a downturn in liquidity. The same thing happened again in 2018 during the IL&FS crisis.
Lending companies tighten capital, thus making it difficult for real estate companies to access capital. On top of that, the lack of need for housing further compounded their woes. The dual effect of these factors has sent the Indian real estate sector into a slump for years.
However, the Covid-19 pandemic has led to a paradigm shift in demand and the sector has come back from the dead.
Demand was mainly driven by record low home loan rates supported by favorable government policies.
Mumbai, the financial hub and the most expensive real estate market in India (according to Statista) is leading the way. In fiscal year 2021, the city recorded the highest number of registrations in the past 10 years. This momentum seems to remain strong in the ongoing financial year and shows no signs of slowing down.
Many developers reported record pre-sales and cash collections for the nine months ending December 2021. In addition to the record sales numbers, the average number of days in inventory fell from a peak of 60. months in fiscal 2017 to 28 months in 2021.
This indicates strong demand that may continue in the future. Looking at the strong growth prospects of this sector, this article brings you the top 4 listed real estate companies that deserve a spot on your watch list.
Here it is…
#1 Godrej Attribute
Godrej Group is the largest landowner in Mumbai. This group owns about 3,400 acres of land in the most expensive real estate market in the country. This parcel of land has development potential estimated at Rs 1 tn.
Godrej Properties, the real estate arm of Godrej Group, is charged with carrying out development projects on behalf of the group.
As the largest developer in terms of residential sales, the company has salable space across India at 186 square meters as of December 2021.
In the nine months ending December 31, 2021, the company sold 6.6 square meters, down 1% year-on-year. However, it reported 13% growth in booking value year-on-year (YoY).
The Company has an unsold inventory (completed projects) worth Rs 5,350 crore as of December 2021. After calculating the impact, the closing affected the company’s inventory. ; Godrej Properties takes about 900 days to sell out of inventory.
On the balance sheet front, the company is falling on average on the books as it reports a net debt-to-equity ratio of 0.04 times compared with the 0.64 times reported in the same period last year. .
Godrej Properties has a huge cash bank in which Rs 7,500 crore will be invested over the next 12-18 months to acquire and develop new real estate projects across four key markets – Mumbai, Delhi- NCR, Pune, Bengaluru – where the company has a strong foothold.
#2 DLF
Gurugram is DLF, Mumbai is to Godrej. DLF owns 104 square meters of land in Gurugram also known as DLF city. Gurugram occupies 56.2% of the total land bank of the DLF.
DLF is one of the leading brands in the real estate sector of India. It has a rich history of 75 years in the development of residential as well as commercial projects.
The company has developed more than 330 square meters of facilities on 150 projects since its inception. It owns land units with development potential of more than 215 m2.
DLF’s commercial projects are home to many of the top IT and Fortune 500 companies.
In December 2021, the company reported record sales with a 97% YoY increase in booking value. The company sold a total of 1.2 square meters during the same period.
In the nine months ending December 2021, DLF’s revenue and net profit increased 13% and 78% year-on-year, respectively.
As of December 2021, DLF has a total inventory (completed projects) worth Rs 4,100 crore. The company took an average of 1,311 days to clear inventory, well above the industry average.
In terms of debt, the company had total net debt of Rs 3,220 crore as of December 2021. This translates to a net debt-to-equity ratio of 0.09 times.
Committed company debt reduction by focusing on high-end residential projects and increasing rental yields.
#3 Sobha Ltd
Sobha Ltd is an Indian multinational property developer with headquarters in Bengaluru. Established in 1995, the company develops and supplies residential and commercial properties across major cities in India.
Furthermore, it provides end-to-end engineering, procurement and construction (EPC) solutions under its business contract. Its clients include some of India’s biggest corporations like Infosys, ITC, HCL Technologies, etc.
Sobha is the only backward integrated real estate developer in the country. This means that the company produces all the materials that go into their project, be it furniture, concrete blocks, aluminum doors and windows, even mattresses to that extent.
This helps the company significantly reduce input costs. As a result, the company’s gross margin increased at a CAGR of 11% over the past 5 years.
In a fiercely competitive market in which developers take around 500-600 days to sell a real estate apartment, Sobha sells a unit in just 136 days.
Developers do that by dispersing their projects across large IT hubs instead of just focusing on one city.
As of December 2021, the company has unsold inventory (completed projects) worth Rs 320, which is one of the lowest in the industry.
The company reported steady numbers until the pandemic broke out.
The first two quarters completely lost value with sales plummeting due to nationwide shutdowns.
However, demand rebounded thanks to low interest rates and the company had a pretty good recovery.
Since then, the company has consistently reported good numbers quarterly. In December 2021, its profits were up 51.4% year-on-year.
Due to high debt, the company’s net profit margin is quite low. Sobha’s debt-to-equity ratio was more than 1.07 times as of December 2021. However, in the future, the company is confident to bring this ratio below 1 times.
The company has paid dividends to shareholders fairly steadily.
#4 Sunteck Realty
Sunteck Realty is one of the fastest growing property developers based in Mumbai.
Although the company develops residential and commercial projects, it mostly focuses on residential projects with 72% of projects being residential projects.
Sunteck has a portfolio of 21 projects spread across Mumbai. This makes Sunteck a downtown developer focused on a single market.
Sunteck projects together have a floor area of 50 square meters.
The company has an unsold inventory of Rs 1,700 crore as of December 2021 and aims to release it in the next 3-4 years.
Sunteck’s inventory days are quite reasonable by industry standards. The company sells one unit of its assets in 300 days (less than a year).
In the nine months ending December 2021, the company saw a 23% increase in bookings compared to the same period last year.
Despite being a capital intensive industry, Sunteck is less leveraged when compared to its peers.
The net debt-to-equity ratio stood at 0.16x as of December 2021. The company aims to write off the remaining debt in the next 3-4 years.
Snapshot of top real estate players in India from Equitymaster’s Stock Screener
Here’s a quick overview of these companies based on some key finances.
Please note that these parameters can be changed according to your selection criteria.
This will help you identify and eliminate stocks that don’t meet your requirements and emphasize those with good indexes.
Footsteps cautiously in times of turmoil
Although the Indian property sector is in an upbeat mood, a rate hike could dampen the mood quickly.
As the conflict between Russia and Ukraine intensifies, raising interest rates is highly likely to tame the inflation monster.
In such a volatile environment, make sure you invest in a company with strong cash flow along with minimal debt.
Here’s what Tanushree Banerjee, Co-Head of Research at Equitymaster, has to say about real estate.
The biggest drag for real estate players is high debt, and with interest rates rising, investors need to be wary of real estate companies that tend to pile up debt and operate with cash flows. least.
In addition, this is an area where investors must be very cautious about the quality of management. Poor accounting and lack of corporate governance are the reasons why many large real estate companies underperform in the past.
Make sure you analyze the fundamentals thoroughly before investing in any real estate company.
In addition, staggered investing will help you weather the volatility.
Happy investing!
Disclaimer: This article is for informational purposes only. It is not a stock recommendation and should not be treated as such.
This article is provided by Equitymaster.com
(This story has not been edited by NDTV staff and is auto-generated from the syndication feed.)
