Real Estate - Residential: Green shoots emerge, all eyes on festive season - ICICI Securities

After a washout in Q1FY21, Q2FY21 (July-September 2020) has seen industry volumes revive to 80% of pre-COVID levels owing to a mix of pent-up demand, price discounts and low mortgage rates. We expect the listed, organised players to clock anywhere between 70-90% of Q2FY20 sales in Q2FY21. As we head into the festive season, listed developers have a number of planned launches and continue to focus on monetisation of ready inventory. While overall industry volumes may remain lower in H2FY21 on YoY basis, we expect listed developers to be continued beneficiaries of industry consolidation and expect their sales volumes to get back to pre-COVID levels in this period assuming further waning of COVID-19 impact. We reiterate our BUY rating on DLF, Brigade Enterprises, Sobha and Sunteck Realty in the residential space.

- Sales volumes at 80% of pre-COVID levels in Q2FY21: After a virtual washout in Q1FY21 owing to COVID-19 lockdown, residential sales volumes in Q2FY21 (July-September 2020 period) across India's top 8 cities have bounced back to ~80% of pre-COVID levels, as per PropEquity. Overall sales in terms of units improved to ~55,000 units which is up 2x QoQ. The QoQ rise in absorption was accompanied by a rise in new launches which grew 116% QoQ to ~39,300 units as lockdowns were relaxed across cities. With developers continuing to offer discounts of 5-10%, low mortgage rates of ~7-8% and pent-up demand along with Work from Home driving need for houses, large and organised developers have been able to effectively drive sales through digital channels by leveraging their brand strength even in a weak market. The focus in Q2FY21 remained on pushing ready-to-move inventory.

- Price discounts continue across the board: As per a study done by Liases Foras, weighted average prices across Tier cities have reduced by 4-5% since March 2020. Of this, the maximum decrease in prices on YoY basis has been in the MMR and NCR markets which declined 8% and 9% respectively. Developers are offering a combined discount of 5-10% including stamp duty/registration waiver, cash discounts, online booking discounts, free household appliances and builder subvention schemes. Interestingly, the stressed micro-market of Central Mumbai in the MMR which has a significant unsold inventory, has seen a number of deal closures in H1FY21 as investors look to exit these projects which are now complete. As per our channel checks, these units which had a quoted price of Rs60-100mn pre-COVID are seeing transactions closing at a 20-30% discount to quoted prices vs. 10-15% pre-COVID.

- Listed developers to be continued beneficiaries of industry consolidation: While Q2FY21 continued to see Indian cities under lockdown, we expect the listed, organised players to clock anywhere between 70-90% of Q2FY20 sales with a sharp QoQ bump up in sales for Mumbai-centric developers such as Oberoi Realty and Sunteck Realty. Godrej Properties (GPL) had a stellar Q1FY21 wherein its sales booking value grew 71% YoY owing to 50% sales from NRIs and the 10:90 "Hope Has a Plan" builder subvention scheme. With the builder subvention scheme having been phased out in Q2FY21 and no major launches during the quarter, we expect GPL to clock sales bookings of Rs10.4bn in Q2FY21. For H1FY21, this implies sales value growth of 10% for GPL. For South India based players such as Sobha, Prestige Estates and Brigade Enterprises, sales bookings are estimated at 80-90% of pre-COVID levels. While Brigade and Sobha have been largely reliant on monetisation of launched inventory and activation schemes, Prestige Estates has launched 3 new projects (one in Goa and two in Bengaluru) through digital channels during the quarter.

Source : Equity Bulls

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