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Demand momentum sustains; interest rate unlikely to be a dampener

* Inventories across most of the companies under our coverage universe have declined to below 12 months as absorptions have exceeded launches over the last six quarters.

* We thus expect launches for our coverage universe to pick-up in 4QFY23 to a multi-quarter high leading to 42% YoY growth in pre-sales. Operational update reported by a few companies indicates a pre-sales growth of 12%/11% YoY in 4QFY23/FY23.

* According to Knight Frank, demand in top-8 cities has sustained at ~80,000 units in 4QFY23. Further, with a surprise pause by the RBI, interest rate will unlikely be a dampener on demand from hereon and we expect the industry to grow at 5-10%. While MMR, Pune and Hyderabad have posted an increase in inventories, overhang continues to remain under control at 18 months for top8 cities. Hence, the industry will continue to witness gradual price hikes.

 We reiterate our constructive outlook on the industry and prefer players with high pre-sales growth potential. LODHA, PEPL and GPL are our sectoral top picks.

Launches for our coverage universe likely to be at multi-quarter high

* Sales volume for our coverage universe has exceeded launches over the last six quarters that led to a decline in inventories to below 12 months for most of the players.

* As demand momentum continues to sustain, we expect launches for our coverage to pick-up from 4QFY23 and reach a multi-quarter high of 18msf.

* Operational update indicates a pre-sales growth of 10%/42% YoY in 4QFY23/FY23. We expect our coverage to report 42% YoY growth in presales in 4QFY23 propelled by over three-fold jump in DLF’s sales. Ex-DLF, sales would grow at 4% YoY.

Demand momentum sustains; supplies inching up in a few markets

* Despite over 200bp rise in mortgage rates, residential absorption has sustained at a quarterly run-rate of ~80,000 units for top-8 cities over the last five quarters.

* However, supplies for the top-8 cities have exceeded absorption since the last two quarters driven by increased launches in MMR, Pune and Hyderabad. That said, inventory overhang for the industry has sustained at a comfortable range of 18 months, which is conducive for consistent price hikes.

* Key markets, such as NCR and Bengaluru, continue to witness favorable demand-supply scenario (demand exceeding supply) and are likely to report higher-than-average price hikes while the same in MMR and Pune is expected to be in the 4-5% range.

Surprise rate pause to restore the growth trajectory

* With a surprise pause in rate hike by the RBI in its Apr’23 policy meeting, our economist believes that the probability of any further rate hikes is minimal and we might even witness a rate cut from late-CY23. Thus, interest rate hikes are unlikely to be a dampener from hereon.

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