Top 5 Real Estate Stocks to Watch Out for As Nifty Realty Index Reaches Record Levels

India's real estate market is having its day in the sun.

The sector has been booming, fuelled by affordability, and strong end-user demand. A large part of this surge also comes from healthy market dynamics such as improved affordability and end-user-driven demand. Some of this surge can also be attributed to concentrated demand and duty cuts in specific locations.

Even rising interest rates haven't dampened buyer enthusiasm - so far.

The sector has witnessed a remarkable recovery, visible in the performance of the Nifty Realty index. The realty index rose over 98% in 2023 and was the best-performing index in 2023.

But is this a sustainable trend? Moreover, have investors missed the bus?

In this article, we explore the top five real estate stocks in the market right now. Here's what they hold in store for the future.

#1 PSP Projects

At the top of our list is PSP Projects.

PSP Projects enjoys a diverse set of construction and allied services across all kinds of construction projects in India.

The company caters to different segments like industrial, institutional, government and residential. It is known for its timely execution and ability to bid for high-value projects.

PSP Projects has received multiple long-term orders in the past few months. The order book stands at Rs 44.00 bn, a 12.0 % decline year-on-year.

While the company has been successful in securing new orders (Rs 1.9 bn in the nine months ending 2024), this has been offset by accelerated project execution and higher ongoing project completions. This has led to a 12% decline in the order book compared to the previous year. However, a healthy order book of Rs 44 bn provides good visibility for future revenue streams.

PSP Projects Financial Snapshot (2019-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	39.30%	41.96%	-17.45%	40.74%	10.91%
Operating Profit Margin (%)	16.31%	14.34%	12.22%	16.03%	13.16%
Net Profit Margin (%)	8.48%	8.55%	6.72%	9.51%	6.95%
Return on Capital Employed(%)	40.16%	40.30%	21.83%	35.28%	24.83%
Return on Equity (%)	26.57%	31.14%	16.84%	27.19%	18.10%

Data Source: Ace Equity

Between 2019-23, the sales have registered a 5-year compounded annual growth rate (CAGR) of 20.5%. The net profit has grown by 15.3% over the same period.

This has led to strong returns with a 5-year average Return on Equity (RoE) and Return on Capital Employed (RoCE) of 32.4% and 23.9%. The strong growth comes with minimal debt. The company's balance sheet is well-capitalised, with a debt to equity of 0.18x in the financial year 2023.

The business prospects remain strong backed by execution capabilities, uptick in the infra and capex cycle and a strong balance sheet. Recently, the company set up a manufacturing plant for concrete and allied elements with a total capital outlay of around Rs 1.1 bn.

Looking ahead, the company is well-placed for healthy growth at decent margins, driven by a strong order book.

However, despite the bright prospects, the stock (up 8% in the past year) has underperformed the broad market index (up 25%) and the Nifty Realty index (up 139%).

While the company has reported a strong quarterly performance, in comparison to the last year, there have been issues like the payment for the Surat Diamond Bourse (SDB).

PSP Projects has alleged that the SDB has not paid the dues for the massive complex. The total outstanding dues owed to PSP Projects is approximately Rs 5.3 bn. However, the company is hopeful of the clearance of the liability. On March 11th 2024, the Commercial Court in Surat directed the SDB management to furnish an irrevocable bank guarantee of Rs 1.2 bn within four weeks.

Consequently, PSP Projects is trading at a Price-to-earnings (P/E) ratio of 16.8 times, close to its 5-year median of 16.9 times.

To know more about the company, check out its financial factsheet and latest financial results.

#2 Phoenix Mills

Next on our list is Phoenix Mills.

Phoenix Mills is a major player in Indian real estate. The company has transformed from a textile company to the country's largest listed pure-play mall developer. It's iconic High Street Phoenix mall in Mumbai exemplifies it's success in creating retail formats.

The company has been developing mixed-use projects including offices, hotels and residences alongside retail spaces.

Unlike competitors who sell their properties, Phoenix Mills retains ownership, allowing them to set the ideal tenant mix and maintain large malls with diverse offerings. This has resulted in significant revenue and profit growth.

Phoenix Mills Financial Snapshot (2019-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	23.35%	-3.23%	-43.13%	36.98%	76.82%
Operating Profit Margin (%)	54.44%	52.85%	56.14%	54.51%	62.00%
Net Profit Margin (%)	23.30%	18.33%	3.24%	16.72%	55.81%
Return on Capital Employed(%)	12.96%	10.50%	4.41%	6.33%	17.35%
Return on Equity (%)	14.65%	9.95%	0.78%	4.28%	19.74%

Data Source: Ace Equity

Between 2019-2023, revenue and net profit grew substantially at a 5-year CAGR of 19.5% and 36%, respectively. This stellar performance has propelled the returns, which have moved up in the last five years.

For the nine months ending December 2023, retail rental income was at Rs. 12 bn, up 25% over the last year. This growth was led by increasing trading occupancy seen across newly launched malls with more stores getting opened.

The company has been on a roll, launching four malls in the past year and undertaking five diverse projects across five cities, spanning a total of 2.65 million square feet (msqft). Furthermore, it has been actively expanding its presence in Bangalore and Mumbai.

Looking ahead, the real estate player is evolving as a leading developer/owner of large-format retail malls and hotel assets with a pan-India presence. It is leveraging it's success at Mumbai and replicating value across its 'Market City' projects in various cities.

Their prime locations, stable cash flow, and clear expansion plans position them for continued success.

The stock has moved in line with its peers (up 120% in the past year), outperforming the broad market index.

Despite the jump in the price, the stock is trading at a 10% premium to its 5-year median PE. It is trading at a PE ratio of 53 times.

To know more about the company, check out its factsheet and latest quarterly results.

#3 Oberoi Realty

Third on our list is Oberoi Realty.

Oberoi Realty is a big real estate player in one of the major real estate markets in the country - Mumbai. The company develops residential, commercial, retail and social infrastructure projects. It also offers hospitality and property management services.

Over the years, Oberoi Realty has developed 42 projects across Mumbai, aggregating around 11.9 m sqft of space. Some of its marquee projects include Oberoi Garden City, Oberoi Mall and Exquisite.

Presently, the company has two major projects under construction, totalling 2.2 m sqft. However, the company's other new major projects have been completed but are yet to be fully booked (totalling approximately 5 msqft).

Recently, the company acquired land in Gurugram, marking its first foray into the NCR region. Apart from this, it also completed the transaction for a land parcel in Thane.

Oberoi Realty has reached new heights largely led by robust demand prospects for residential projects in Mumbai and movement in construction activities in ongoing projects.

Moreover the new land acquisitions in strategic locations have also paved the way for revenue growth in the medium term.

Oberoi Realty Financial Snapshot (2019-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	105.99%	-14.10%	-8.55%	31.66%	55.98%
Operating Profit Margin (%)	47.79%	48.99%	50.59%	46.02%	52.77%
Net Profit Margin (%)	31.63%	30.54%	36.02%	38.87%	45.43%
Return on Capital Employed(%)	13.76%	10.64%	9.51%	11.91%	16.26%
Return on Equity (%)	11.57%	8.21%	8.21%	10.58%	16.83%

Data Source: Ace Equity

Between 2019-2023, the company has registered a sales and net profit 5-year CAGR of 27.1% and 32.9%, respectively. This has led to strong returns with a 5-year average RoE and RoCE of 11.1% and 12.4%, respectively.

Despite the strong growth in the business, the company has maintained a healthy balance sheet with a debt-to-equity of 0.32 in the financial year 2023.

In the last year, the stock has surged 79% and is trading at a PE of 35.6 times, a 30% premium to its 5-year median average.

To know more about the company, checkout its factsheet and latest quarterly results.

#4 Prestige Estates Projects

Fourth on our list is Prestige Estates Projects.

Prestige Estates, a South Indian powerhouse, is the region's top developer. The company focuses on mid-to-premium properties, with most projects concentrated in Bengaluru, India's second-largest residential market and the leader in office space.

Prestige is a diversified developer, building residential townships, commercial spaces, retail centres, and even hotels. It's strategic use of joint development models keeps land banking costs down, allowing them to expand it's footprint.

Prestige Estates Projects Financial Snapshot (2019-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	-5.07%	56.00%	-9.19%	-11.83%	32.91%
Operating Profit Margin (%)	30.28%	30.46%	30.40%	27.30%	30.59%
Net Profit Margin (%)	7.95%	6.75%	39.74%	19.01%	12.83%
Return on Capital Employed(%)	10.72%	13.53%	32.89%	14.97%	13.18%
Return on Equity (%)	9.18%	11.44%	43.08%	14.21%	11.19%

Data Source: Ace Equity

Between 2019-2023, the business has expanded swiftly. While the sales have grown at a 5-year CAGR of 9.5%, the net profit has more than doubled. The returns have been rangebound, with the RoE and RoCE averaging at 17%.

The company reported a debt to equity of 0.81 in the financial year 2023, likely to surge, given the expansion plans in the coming years.

Looking ahead, Prestige plans to ramp up its rental income from the current Rs 5.5 bn to Rs 39 bn by financial year 2028. It also plans to double its hotel portfolio from 1,489 keys currently to 2,969 keys over the same period. The company plans to fund a capex of Rs 146 bn over the next four years, two-thirds of which will come from debt and the balance from internal accruals.

Prestige Estates has raised Rs 20 bn via optionally convertible debentures (OCD) from the Abu Dhabi Investment Authority and Kotak Alternate Investment Fund to fund land acquisition and approval costs for four identified projects, with a gross development value (GDV) of Rs180bn per the company.

Recently, they've broken out of their southern comfort zone, venturing into new markets like Mumbai and NCR, showcasing their national ambitions.

In the past one year, the stock has more than doubled in value. It is trading at a PE of 31 times, close to its 5-year median PE.

To know more about the company, checkout its factsheet and latest quarterly results.

#3 Bigbloc Construction

Last on our list is Bigbloc Construction.

While not a real estate developer, Bigbloc offers a unique way to play the booming construction sector in India. They company is the leading manufacturer of Autoclaved Aerated Concrete (AAC) blocks, a sustainable and eco-friendly alternative to traditional red bricks.

Since its inception, Bigbloc has advocated sustainable building materials with its 'NXTBLOC' AAC blocks.

Bigbloc Construction Financial Snapshot (2019-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)		18.68%	-13.41%	70.43%	14.31%
Operating Profit Margin (%)	7.25%	9.01%	11.97%	15.81%	25.41%
Net Profit Margin (%)	-1.40%	2.07%	2.40%	9.18%	15.06%
Return on Capital Employed(%)	4.37%	7.23%	8.06%	23.91%	35.49%
Return on Equity (%)	-5.56%	8.94%	7.99%	40.72%	49.26%

Data Source: Ace Equity

Between 2019-2023, they've seen consistent growth in the business. While the sales have doubled the losses have turned into profits. Additionally, the company maintains healthy financial ratios, indicating efficient use of capital.

Going forward, Bigbloc is investing Rs 750 m to expand its manufacturing capacity in Wada and Kapadvanj. The project will be funded via a mixture of internal accruals and debt. This will solidify its position as India's largest AAC block manufacturer.

Post this expansion, the company projects a total revenue of Rs 2 bn alongside robust EBITDA margins (20-25%).

The company has a large amount of debt on its books. The debt-to-equity ratio reported in the nine months ending December 2023 stood at 1.1x, up from last year. In the financial year 2023, the debt to equity was at 0.9x with a respectable interest coverage ratio of 10x.

The AAC block industry faces challenges like moderate entry barriers and a strong preference for traditional red bricks in India. However, the vast potential for market conversion from red bricks to AAC blocks presents a significant opportunity. Bigbloc is well-positioned to capitalize on this shift, driven by its commitment to sustainability and a growing market.

The stock has surged 81% in the past year. It is trading at a PE of 59.5 times, a 43% premium to its 5 year median.

To know more about the company, checkout its factsheet and latest quarterly results.

In conclusion

The Indian real estate sector offers potential, but selectivity is key. Seek companies with strong balance sheets, low debt and a long and clean history of good intentions towards their shareholders.

Moreover, consider your risk tolerance and investment horizon. Do your research before making any investment decisions. Remember, past performance isn't a guarantee of future results.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...