Top 5 real estate companies in India

13 Nov 2021  Read 1635 Views

That “pehli paycheck wali feeling” is surreal, isn’t it? Whether it’s you or a close one receiving it, the excitement is real. But as Uncle Ben said,“With great power comes great responsibility.” The responsibility that comes holding your first salary’s hand is spending it well.

Many people give various advice. One advice that interests every young earner with the increasing awareness towards the stock market is “invest wisely”.

While a solid idea, a question that remains is, invest where?.

Well ask and you shall receive, to begin BUILDing a strong portfolio, with a strong FOUNDATION and ROOM for growth, the choice of industry to invest in matters too.
Really hoping you got the hint, we would like to divert your attention to the Real Estate Industry and present you with our top 5 real estate stocks that might pique your interest. But before that learn how to analyse the real estate company.

How to analyse real estate company

The 3 most important things in real estate are LOCATION! LOCATION! LOCATION!

Even when you as an individual buy a house you check whether the location is a prominent one, whether all amenities are situated in proximity etc. Similarly, one should look at new projects that these companies are investing in.

Other key points to look at are

Leverage: Check whether the company is highly levered. For this you can go to ticker and add your custom ratio like debt-to-equity ratio. Along with debt, cost of this debt would be another variable to be tracked. We want the debt to have a low interest expense. 

Leverage is the best friend a company can have when the economy is good and the worst enemy a company can have when the economy is facing trouble. 

We don't want our real estate company to have too much debt because in case of unsold properties, that debt would act as leech and suck out everything from a company.

Promoter holding: Higher promoter holding ensures that the promoter group has faith in its company. Also check if the promoter is pledging his shares because then indirectly the promoter is increasing debt of the company.

Brand Value: This is what a company earns with time. If a company is able to deliver its projects on time and gives its customer the best quality product then it can always sell its properties at a premium compared to other players in the market. With RERA coming in the picture, most of the builders are now completing their projects on time.

Inventory levels and ongoing projects: Inventory would tell us how many properties that the company has completed but is unable to sell. This is a sign of caution and you should investigate the reason for the same. Ongoing projects would certainly tell us the future prospects of the companies. Also, looking at past track record and total area developed until today, would give us a picture of how the company is performing.

Valuation: We generally cannot value these companies on P/E multiples because they don't have a defined business cycle. Some companies may complete their small sized projects in 1 or 2 years while others would take 5+ years to complete a single large project. 

To value such companies all you have to do is look at the value of the projects the companies have in hand and compare it to the market cap of the company.

So, without waiting further, let's take a look at some of the renowned real estate companies in India.

Top 5 Real estate company in India

Now that we know some of the key points about the real estate industry. Let’s move on to the top 5 real estate companies in India by revenue.

DLF

Chaudhary Raghvendra Singh founded DLF in India. It is involved in development of various property types – residential, commercial and retail. 

Moving forward let's have a look at some numbers. The sales had reduced drastically from 3.7k to 2.4k in the initial 4 years but then exploded in 2021. Although sales were reducing, the profits were increasing year on year.

Sales & profit growth of DLF (2017-21)

Moving to debt-to equity ratio. Company has a low D/E of 0.19 which is a positive sign. 

Talking about promoter holdings and brand presence the company has very strong brand presence in northern India specially in NCR region.

Promoter holding is high and stable at 74.95 levels. It seems promoters are very confident about their business.

Macrotech Developers

The company is famous by the name ‘Lodha builders’. Abhishek Lodha is the MD of the group. It has its fortress set in the Mumbai metropolitan region (MMR).

Sales and profit growth of Macrotech Developers (2017-21)

Moving on to the financials of the company D/E ratio is at an unreal level of 3.98. Even though promoters hold 88.51% of the stake 32.99% of those shares are pledged. 

Lodha as a brand is well known in MMR for affordable housing as well as in the premium segment. 

If you have a look at merely the above financial parameters you would simply avoid this company for 3 main reasons. 

First the high D/E ratio, second declining sales/profit and third promoters pledging. This is the prime reason why markets aren’t valuing this company like DLF.

Brigade Enterprises

The Brigade Group was incorporated in 1986 and is one of India’s leading property developers with over three decades of expertise in building positive experiences for all stakeholders. 

The company earns from 3 sources: Real estate sales, lease rentals, and hospitality. 

Now let's look at some numbers. The company has a sales level around 1.5k to 2k crores and the profits were growing until the pandemic struck. The sales were pretty stagnant for the last 5 years. 

Sales & Profit growth of Brigade Enterprises (2017-21)

Let's have a look at  D/E and promoter holding. Company has a D/E of 0.68 with a debt of 1873.74 crs. 

If you compare promoter holdings to other 4 companies, promoters have less stake in the business and it has reduced even more to 43.96%.

Prestige Estates Projects

Founded in 1986, CMD Irfan Razack and his brothers Rezwan Razack and Noaman Razack have taken the Prestige Group to new heights as one of the leading and most successful developers of real estate in India.

Prestige has a presence in diverse segments like commercial, residential, retail, leisure and hospitality segments. 

Like Brigade, the sales for Prestige group are fluctuating between 2.4k and 4.1k but profits have declined sharply in 2018 and then they haven’t risen much. 

Sales & profit growth of Prestige Estate Projects (2016-20)

Debt to Equity of Prestige is a moderate 0.42. Prestige as a brand has limited their business to southern parts of India only. Promoters haven’t pledged any of their shares and hold 65.48% of the company’s stake. 

Godrej Properties

Finally, let’s discuss Godrej properties. The company enjoys the brand value of its parent group. Godrej is known for its timely delivery of projects. 

It has its presence in various cities while total projects completed to date by Godrej cover an area ~187 million sq ft. Pirojsha Godrej is the Executive Chairman & Mr. Mohit Malhotra is the Managing Director & CEO of the company.

Compared to other companies that we previously discussed, sales and profit of Godrej properties was increasing until the pandemic hit its growth trajectory. 

Talking about D/E it is 0.52 with a debt of 4513.12 crs which is manageable. 

Promoters have actually decreased their stake in this business in March 2021 from 64.44% to 58.43%.

Sales & profit growth of Godrej Properties (2017-21)

Conclusion

These companies have been able to maintain respectable statistics even though the real estate market has been sluggish in the recent past.

To aid in further growth in this industry, the government is bringing forth various housing schemes as well as there is a rising demand for affordable housing. These factors could not only help the existing companies, but facilitate the emergence of new players as well.

Another point to note would be the fact that with the real estate industry growing, the home decor industry (an ancillary to real estate) may show some interesting growth as well. We suggest keeping a close eye on some possible stars in this industry as well.

So what do you think of our real estate stock lineup? Let us know in the comments section and share with a friend to give their first or new income some direction.

*Disclaimer: The stock discussed above aren't recommendations from Finology, they are only picked to make you understand the concept.

About the Author: Amol Nakashe | 16 Post(s)

Amol has completed his Electronics Engineering from VIT, Pune. But his passion for the stock market intrigued him in pursuing MBA in Finance. He is a keen reader of topics related to stock markets and follows market updates religiously.

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