Nuvama picks Prestige Estates, Brigade as top real estate stocks; here’s why

Nuvama's latest sector analysis for FY25 highlights Prestige Estates Projects and Brigade Enterprises as its two leading real estate stock recommendations, both rated 'BUY' after a comprehensive review of 23 listed developers. The report reveals that cash EBITDA margins improved to 42 per cent in FY25 from 40 per cent in FY24, indicating stabilising profitability despite evolving market conditions.

Nuvama said, "We believe cash EBITDA margins would stabilise, but working capital build-up might continue going ahead. Prestige Estates and Brigade—each rated ‘BUY’—remain our top picks." This view comes as the industry enters the middle stage of the current housing cycle, marked by moderating buying activity and a slight increase in unsold inventory.

Sales momentum has moderated, with the earlier buying frenzy easing. Industry cash operating profits grew 16 per cent year-on-year, but working capital requirements also rose. Only nine developers enjoyed a negative working capital cycle in FY25, compared to 12 in FY24.

Nuvama's deep dive further said that while profitability rose YoY in FY25, there was some working capital build-up compared to a neutral cycle in FY24. Nine of the 23 developers reported a release of working capital in FY25 versus 12 in FY24, causing operating cash flow to falter slightly.

The cash flow analysis showed significant variance across the sector. DLF, Lodha, and Rustomjee posted high cash EBITDA margins, while Brigade recorded lower margins but remains a top pick due to operational strengths. Prestige Estates saw a cash deficit due to high annuity capital expenditure, Nuvama said.

Industry-wide, free cash flows declined year-on-year in FY25, mainly due to increased land capex. Only four developers generated positive free cash flow in FY25, down from eight in FY24. Notably, 11 companies raised equity funds despite low leverage, indicating continued debt aversion.

Looking ahead, Nuvama expects cash EBITDA margins to stabilise, but working capital build-up is likely. "We reckon working capital intensity shall increase driven by: i) a pickup in construction activity; ii) abatement of buying frenzy; and iii) low finished inventory levels in the industry. We believe increase in house prices shall moderate, capping a margin improvement. Given land capex is likely to remain high, this should keep cash flow generation in check," it said.

Prestige Estates and Brigade Enterprises will continue to face competition from firms such as DLF, Oberoi Realty, Lodha, and Godrej Properties. However, Nuvama sees both Prestige and Brigade as better positioned for long-term performance due to their operational strategies and sector outlook.