DLF, Lodha and Brigade Enterprises shares: 3 real estate stocks bets by Kotak

Kotak Institutional Equities prefers DLF, Macrotech Developers (Lodha) and Brigade Enterprises in the real estate pack following the across-the-board rally. In a sectoral note, the domestic brokerage said valuations for most residential real estate stocks stand at 3-8 times implied EV/ Ebitda on FY2025 pre-sales basis, which is near the higher end of their past trading range.

This, it said, reflects the strong underlying business performance as well as changing investor interest. "We continue to remain constructive on the sector, owing to strong operational performance by the players, though the recent rally makes us more selective in our approach. We prefer DLF, Lodha and Brigade within our coverage universe," it said.

Kotak noted that residential real estate demand remained robust in the June quarter with pre-sales of 234 million square feet, up 19 per cent YoY but fell 7 per cent sequentially. The sequential moderation was on expected lines, as Q4 is generally the strongest quarter.

Kotak said pricing for the quarter was robust, with an average realisation of Rs 7,200 per square feet, up 11 per cent YoY, down 2 per cent QoQ).

It noted that Bengaluru led the sales growth in the June quarter, with 21 per cent YoY growth. It was followed by NCR (up 25 per cent YoY) and MMR (up 9 per cent YoY. Among its coverage players, Lodha, Prestige and Sobha delivered strong growth, while Oberoi Realty and Godrej Properties logged weak growth.

"We remain constructive on the sector, though the recent stock rally limits upside, making us more selective," it said.

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Kotak noted that June quarter also marked lower margins for several real estate players.

"Lodha and Brigade attributed the lower margins to lower revenue recognition on account of weak project delivery, while Sobha highlighted post-Covid cost inflation to have impacted margins. Besides soft delivery and weak margins, 1QFY24 also saw the absence of significant launches from large listed players — DLF had a strong Q4FY23 owing to the launch of Arbour that led to a sequential decline in sales, but in general most players, including Oberoi, Brigade and Lodha, highlighted the absence of significant launches as a reason for modest pre-sales performance. Developers have lined up strong launch pipelines that will likely hit the market in 2HFY24, aligned with the onset of the festive season," it said.

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