Godrej Over DLF—Morgan Stanley Names Real Estate Picks Amid Slowdown Fears
Many of the DLF projects may not be completed in the next three–four years despite strong pre-sales growth, Morgan Stanley says.
Morgan Stanley has downgraded DLF Ltd. to 'equal weight' from 'overweight', but raised its target price for the stock.
The brokerage revised the target price to Rs 900 apiece from Rs 770 earlier, implying a potential downside of 5.1% from current levels, according to its the brokerage's India Property report that was released on April 1.
It upgraded its rating for Godrej Properties Ltd. to 'overweight' from 'equal-weight'. Target price for the stock was revised upwards to Rs 2,500 per share, implying a 4.8% upside.
"We estimate 4QF24 growth slowed. We also expect companies to guide conservatively (+10-20% YoY in FY25e, below actual FY24 growth of 30-40%, FY23 of +20%)," Morgan Stanley said.
DLF
Morgan Stanley updated its 2025 pre-sales estimate to Rs 22,500 crore from Rs 18,000 crore, driven by stronger-than-expected sales in the first nine months of financial year 2024.
However, the brokerage sees limited upside to its price target for the following reasons:
Expects near-term momentum slowdown with Privana West sales moving to the first quarter of the new fiscal.
Expects some delay in launches in the June quarter due to the Lok Sabha election.
Many of the projects may not be completed in the next three–four years despite strong pre-sales growth.
The brokerage estimates revenue to decline 15–18% in fiscal 2024–26 on lower revenue recognition as major project launches from fiscal 2022 are scheduled for completion beyond fiscal 2026.
Godrej Properties
Godrej Properties' upgraded rating is supported by its updated pre-sales estimates.
Morgan Stanley estimates the company's pre-sales to grow 20% to Rs 23,400 crore in fiscal 2025, which is 40% higher than the brokerage's previous estimate of Rs 16,800 crore.
Other reasons supporting this rating include:
Aggressive land banking, with the company acquiring three land sites costing Rs 1,000 crore and a revenue potential of Rs 7,800 crore.
Stock trading at its long-term average, which appears attractive, considering the recent growth uptick.
Expect the return on equity to improve steadily over time.
However, the brokerage said that the gearing is rising due to aggressive land banking. As of December, net debt stood at Rs 6,900 crore—net debt/equity of 72%—and interest expense of Rs 120 crore was 47% of net income in the first nine months of fiscal 2024.
Other Three Real Estate Players
Morgan Stanley continues to maintain an 'overweight' rating on Prestige Estates Projects Ltd. with a price target of Rs 1,400 per share. The brokerage estimates its pre-sales to grow 20% YoY to Rs 25,200 crore. It raised its fiscal 2024–26 revenue estimates by 3%, 11% and 9% respectively.
For Macrotech Developers Ltd., it maintains an 'equal weight' rating with a target price of Rs 1,050 apiece. The pre-sales estimates remain largely unchanged, while its margin assumption was tweaked to 25% from 30% to account for increased joint-venture share projects.
The brokerage maintains its price target of Rs 1,180 apiece for Oberoi Realty Ltd., driven by a 6% downward revision to pre-sales estimate for fiscal 2024–26.