HSBC in its fresh note said its preferred 'Buy' ideas in the real estate sector includes Godrej Properties Ltd, DLF Ltd and Prestige Estates Projects Ltd. It said most real estate developers can complete their existing projects without selling anything more. Free cash flows even without future sales are largely positive, balance sheets strong and prospective margins likely higher, HSBC said. It is positive on Godrej Properties for its decentralised and diversified operations. HSBC likes DLF for its very strong brand and balance sheet; Prestige Estates for its impressive land parcels and superior execution track record; and Sobha for its turnaround potential. It has 'a Hold' rating on Oberoi Realty for its limited projects exposure and valuation. "We are still positive on the stocks following the correction, although we see early signs of a peak. We highlighted that the 3Q and 9M performance of most of the listed developers indicate 21 per cent YoY pre-sales growth guidance in FY25, of which c71% has already been achieved in 9M, with very little unsold inventory and strong balance sheets," HSBC said. HSBC said strong sales momentum in the past four years has ensured that there are enough receivables due from customers that companies can spend on their construction without the need to sell anything more. "The Real Estate Regulatory act (RERA) is ensuring that developers are unable to take out cash from projects without completing their construction obligations. Within the listed developers, net debt ratios are among the lowest in the history of the companies. Moreover, unlike in the past, launch pipeline visibility is much better with the developers," HSBC said. Add to that, the past few years of strong price increases and expansion of the free sale area (FAR) on land parcels have ensured that developer margins are much healthier than in the past.
"Our analysis suggests that 40-50 per cent of net asset value still resides in ongoing projects. In this report, we break down our NAV estimates for the ongoing company residential projects, upcoming visible launches and land values. We also break down the annuity value of the business between rent generating and under-construction annuity projects. Our analysis suggest that 40-50 per cent of market enterprise value is now explained by ongoing and cashflow-generating projects and there is low dependence on terminal value," it said.