The real estate sector, JM Financial said, reached its highest-ever absorption rate in the previous financial year. Pan-India absorption rose by approximately 20.1 per cent year-on- year (Y-o-Y) (basis area absorbed), while supply increased by about 11.5 per cent Y-o-Y. Thus, the brokerage believes, the real estate sector is heading into a strong year ahead.
“With historically low inventory levels, increasing disposable income, and limited supply expansion, the residential real estate sector is set to continue its upward trajectory,” JM Financial said in a report.
It has initiated coverage on DLF, Keystone, Macrotech, Oberoi Realty, and Sobha.
JM Financial on Real Estate sector
For FY25E, JM Financial expects market growth of 18 per cent (volume growth of 12 per cent and 6 per cent escalation in prices, and a moderate increase in supply.
While the supply is expected to grow steadily going forward, the brokerage expects inventory levels to be maintained at healthy levels on the back of robust absorption, given the buoyant demand scenario.
Additionally, while cash flows are anticipated to grow substantially, developers are likely to prioritise business development over deleveraging.
Further, the key trigger that could boost the space is diversification of real estate companies out of the core market.
“Real estate companies have started diversifying into new micro-markets to reduce dependence on core regions and capture growth opportunities,” the report read.
Moreover, owing to improved cash flows, leverage for most players has improved in the last three years, which can help them with higher spending on business development and outright land purchases, as JM Financial.
Additionally, the industry has seen Tier-1 developers gaining market share from the informal segment, especially post the Covid-19 pandemic, where there is a growing preference for spacious, well-equipped residences that cater to remote work needs and offer enhanced security features.
“We remain constructive on the residential cycle, led by a combination of supply side consolidation and increased preference for high-end and quality products,” said JM Financial.
JM Financial top real estate stock picks
Considering the above, the brokerage has initiated coverage on developers with a history of timely launches and strategic business development. DLF, Keystone, Macrotech, Oberoi, and Sobha are JM Financial’s picks from the real estate space.
For DLF, JM Financial has given a ‘buy’ call with a target of Rs 1,000 per share. For Macrotech Developers (Lodha), too, the brokerage has given a ‘buy’ rating with a target price of Rs 1,480.
Additionally, for Oberoi Realty, the brokerage has given a ‘hold’ rating with a target of Rs 1,820. For Sobha, the brokerage has given a ‘hold’ with a target of Rs 1,755.
Lastly, with a ‘buy’ rating on Keystone Realtors, JM Financial has given a target of Rs 895 per share.
First Published: Aug 26 2024 | 12:46 PM IST
