DLF, Godrej Properties, Oberoi Realty, SObha and Prestige Estates II Sales and Cash flows to Improve for Real Estate Sector, says Jefferies

Double digit residential sales growth will be the highlight of Q3 property company results. Construction activity normalized during the quarter which should drive significant QoQ improvement in P&L. Sales and construction pick-up bodes well for cash flows and gearing too. Office lease income should be stable YoY. Retail & hotels to see QoQ improvement but still will be significantly down YoY. New launch commentary will be important from a developer sentiment perspective.

Sobha, Godrej, DLF and Prestige Estates - Sales momentum improvement during Q3:

Sobha reported sales up 22% YoY on value basis demonstrating across market improvement. New launches in the quarter by Godrej Properties, DLF and Prestige Estates, should help them post sales growth of 6-14%. On a QoQ basis, sales improvement should be 20-70% for Jefferies coverage companies. Mumbai stamp duty cut and pick-up in the upper-end segment implies that DLF and Oberoi Realty should demonstrate the highest QoQ sales improvement.

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Execution normalcy to return, driving P&L improvement:

The labor-force at site for most developers has normalized by end Dec'20 and as such we expect average execution levels to have hit 90% of normal. The segments which are still suboptimal are malls (70% consumption by Dec'20) and hotels (occupancies sub 50%) with part-closures seen in 3Q as well. Jefferies expects revenues to increase 10% QoQ for Jefferies coverage stocks, and profits 20% QoQ.

DLF, Godrej Properties, Oberoi Realty and Prestige Estates - New launches outlook important:

Jefferies believes a new residential cycle is now getting underway which should drive volumes higher over the next few years. While sales have done well recently; we expect developers to follow them with new launches to maintain the sales momentum as several developers are running short of inventory now.

DLF is likely to see residential sales nearly double QoQ to multi-year high driven by the success of its new launch in Gurgaon. Profitability yet to normalize due to malls impact.

Godrej Properties should benefit QoQ/YoY in pre-sales from 3-4 new launches during 3Q; Cash collections could surprise on the upside; P&L will lag.

Oberoi Realty should see significant sales and profitability jump QoQ/YoY as Mumbai stamp duty cuts drive inventory liquidation.

Prestige Estates sales could jump to multi-year high as well on new launches during quarter. P & L is likely to stay weak YoY on account of hotel and mall performance issues.