Realty Stocks: Citi Raises Targets for DLF, Sobha, and Others—But Flags Expensive Valuations
The real estate sector in India has been on a remarkable upward trajectory this year, with the Nifty Realty index surging 32 percent year-to-date (YTD), significantly outperforming the broader Nifty index’s 14 percent gain. This rally has been fueled by robust demand, strong bookings, and a slew of new project launches that have kept investor sentiment high.
The Bullish Momentum in Realty Stocks
A recent report by Motilal Oswal highlights the ambitious growth plans of real estate companies, with a project pipeline that supports growth targets of 20-30 percent for FY25. These companies, already operating from a high base, express confidence in sustaining demand over the next few years. Low inventory levels among developers have made timely project launches a top priority, further boosting the sector’s outlook.
Citi’s Revised Targets and the Valuation Dilemma
Amid this bullish environment, international brokerage Citi has raised target prices for several major real estate stocks, including DLF, Prestige Estates, Phoenix Mills, Oberoi Realty, and Sobha. However, Citi has also flagged concerns about the expensive valuations of these stocks, suggesting that investors should approach with caution despite the positive growth prospects
DLF:
- Reported a more than three-fold increase in pre-sales in Q1FY25, with bookings of ₹6,400 crore.
- Successful launch of Privana West Phase 2 in Gurugram and continued momentum in The Camellias, DLF 5, with ₹250 crore in bookings.
- Targeting to launch ₹42,000 crore worth of projects in FY25 across various segments.
- Citi raised the target price from ₹702 to ₹790 due to strong demand and cash flows.
- Maintained a “Sell” rating due to expensive valuations.
Sobha:
- Posted bookings of ₹1,900 crore in Q1FY25, driven by the launch of Sobha Aranya in Gurugram.
- On track to launch ₹8,000 crore worth of inventory and achieve bookings of ₹3,500 crore in FY25.
- Citi raised the target price from ₹1,479 to ₹1,600 due to positive operational trends.
- Maintained a “Sell” rating, citing high valuations with little margin for error in execution.
Phoenix Mills:
- Recorded ₹900 crore in revenue and ₹240 crore in net profit in Q1FY25, with a margin of around 26 percent.
- Some slowdown in mature malls due to elections and infrastructure development, but no structural concerns.
- Citi increased the target price from ₹3,885 to ₹4,040 and maintained a “Buy” rating.
- Raised FY25/26 earnings estimates by 2-4 percent, citing strong leverage to consumption growth and effective execution of new mall pipelines.
Oberoi Realty:
- Pre-sales more than doubled YoY to ₹1,070 crore in Q1FY25, with significant contribution from ‘360-West’ in Worli.
- Citi raised the target price from ₹1,649 to ₹1,840, reflecting recent operational trends and the addition of Commerz III to the NAV.
- Maintained a “Neutral” rating, noting that valuations are expensive and requiring consistent improvement in pre-sales for further gains.
Prestige Estates:
- Reported bookings of ₹3,000 crore in Q1FY25, down 23 percent YoY due to muted launches and low inventory.
- Regulatory delays affected new launches, but management is confident of meeting or exceeding 20-25 percent growth guidance in bookings for FY25.
- Citi raised the target price from ₹1,841 to ₹2,020 and reiterated a “Buy” rating, highlighting the company’s strong pipeline and effective scaling.