Lodha’s robust Q3 show overshadowed by weak investor sentiment

Market


Mumbai-focused real estate firm Macrotech Developers Ltd (Lodha) reported robust bookings in the December quarter (Q3FY23) aided by monetization of completed inventory as well as new launches. Pre-sales grew 16.3% year-on-year (y-o-y), translating into a decent 26% y-o-y rise in collections.

For the nine-month ended December (9MFY23), Lodha achieved pre-sales of 9,039 crore. With this, the company is confident of surpassing its full year guidance of 11,500 crore. Analysts note that sales in Q4FY23 is likely to be buoyed by its key residential project launch scheduled at Matunga in Mumbai.

That said, home loan rates are inching up and if they continue to head northward, then that could dent demand for residential property.

“Although the company has reported good pre-sales in Q3FY23, a key positive of lower home loan rates, is reversing. With rising interest rates, investors in real estate stocks lack the confidence whether this kind of sales momentum will sustain,” said an analyst requesting anonymity.

Another important takeaway from the company’s Q3 operational update was the continued focus on debt reduction. In Q3FY23, Lodha cut its debt by around 753 crore sequentially to 8,042 crore. However, in a rising interest rate environment, it is crucial for investors to keep a tab on the borrowing cost.

“We await company’s guidance on exit net debt for March ’23 (earlier guidance was for 6,000 crore of exit net debt) which is contingent on trajectory of cash flows and business development activities combined with leased asset monetization of offices and malls fructifying,” said analysts at ICICI Securities Ltd.

Meanwhile, in CY22, Lodha stock declined nearly 12%, largely in-line with the Nifty Realty index’s decline. A quick turnaround in the stock’s performance is unlikely, at least for now, said analysts. Apart from these factors, investors in this stock would do well to track the company’s new project additions. Further, in the recent past, the company has forayed into new micro markets in Mumbai as well as new regions of Pune and Bengaluru.

In Q3FY23, the company added four new projects having around 5 million sq. ft. of saleable area with gross development value (GDV) of 8,500 crore across various micro-markets of Mumbai and Pune. In 9MFY23, the company added projects with GDV of 17,800 crore, thus exceeding its FY23 guidance of 15,000 crore.

While this bodes well for Lodha’s long-term growth visibility, unless interest rates start declining, overall investor sentiment towards the sector is unlikely to revive in the near-term.


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