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Seasonality to impact quarter; Momentum intact 

Booking values for 1QFY23 are likely to look optically very strong on account of a low base in 1QFY22 (Covid impact) while moderation is expected on a QoQ basis (seasonality; holidays + onset of monsoon). On the demand front, Mumbai registration data for 1QFY23 indicates (+29% YoY; 11% QoQ decline) healthy momentum offering a a positive read through for the overall residential sector. The other key monitorable includes commentary on the project acquisition front as developers look to capitalise on market opportunities. Key highlights from the coverage universe include, i) Macrotech and DLF are expected to generate surplus cash flows and reduce debt, ii) Prestige Estates has entered MMR in a big way with 3 simultaneous project launches (Mulund, Mahalaxmi re-launch and Bandra) and has seen traction across Mulund (INR 4.5-5.5bn of bookings as per channel checks), iii) Godrej Properties is likely to do well with multiple launches across MMR / Pune region, iv) Oberoi / Sobha sales largely driven by sustenance sales and v) Mahindra Life is likely to report its best ever quarter with launches in Gurgaon and Bangalore performing well. The annuity portfolios (Phoenix, Mindspace and Brookfield) are expected to show QoQ improvement as outlook improves for both retail and commercial sector. We remain constructive on the residential cycle backed by high absorption / low inventory scenario and the ongoing consolidation trends. At current prices, DLF, Macrotech Developers, Oberoi Realty and Prestige Estates remain preferred picks

* Booking values to grow on a YoY basis; seasonality impact on a QoQ basis: The booking values will look optically strong on account of a weak base quarter (1QFY22; Covid) and will moderate on a QoQ basis (seasonality impact). Going forward, the ability of developers to show growth on a high base of FY22 sales would be a key monitorable and dependent on sustained demand momentum and market share gains. All developers in the coverage universe (Exhibit 1) are likely to show a dip on QoQ basis barring MLIFE which is well placed to give its best ever quarter. On the commercial side, a gradual return to office is happening across micromarkets while retail segment is expected to completely normalise (FY20 + annual escalations) from 1QFY23 onwards as consumption patterns remain extremely healthy across categories.

* Launch momentum upbeat; Prestige enters Mumbai in a big way: Post an extremely strong 4QFY22, the launch momentum remains upbeat in 1QFY23. Some of the key projects launched in the quarter are DLF – Tower in Midtown, Gurgaon, Godrej Properties – Ascend, Thane, Horizon, Wadala, Macrotech – Palava, Park Tower 6, New Cuffe Parade Aura, MMR, Mahindra – Luminaire, Gurgaon and Eden – Kanakpura Road, Bangalore, Prestige – Mulund, Mahalaxmi re-launch, Bandra, MMR, Oberoi – no new launches, and Sobha – Royal Crest, Bangalore.

* Large projects releasing substantial cash flows: Developers having RTM inventory are benefitting due to customer preferences towards RTM inventory. As a result, high ticket size projects like DLF Camellias, Lodha Park and Lodha World Towers continue to sell well and release cash flows thereby reducing debt. Commentary on Oberoi Three Sixty West would also be a key montiorable as it gets completed.

* Mumbai property registrations holding up despite interest rate / inflation worries: Mumbai property registrations saw a best ever June with 9,919 registrations (+26% YoY; +1% MoM). For 1QFY23, Mumbai registrations stood at 31,501 (+29% YoY; 11% QoQ decline) As per Knight Frank, c.52% of the property registrations in Jun’22 were in the price band of INR 10mn+ and registrations were driven by homes of up to 500 sqft (38% of all properties registered; 34% in May’22). While the 500-1000 sqft homes continued to be the largest segment (c.45% of the total; 48% in May). The share of 1,000- 2,000sqft homes remained unchanged (c.15%). (Link)

* Preferred picks include DLF, Macrotech, Oberoi Realty and Prestige Estates: We remain constructive on the residential cycle backed by high absorption / low inventory and visible consolidation trends (c.14% share of coverage universe across top 7 cities; +1ppt YoY). At current prices, DLF, Macrotech Developers and Prestige Estates remain preferred picks.

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