The real estate market has seen a four-day rally. The Nifty Realty index gained 2% today. Nuvama, a brokerage firm, remains optimistic about certain real estate stocks. They have identified Prestige Estates and Brigade Enterprises as top choices. Nuvama issued a ‘Buy’ rating for both.
The brokerage report suggests the housing market is moving into its middle phase. Some developers are still showing strong growth.
Nuvama favors Prestige and Brigade. They see strong market positions and long-term value. Nuvama reiterated their ‘Buy’ rating on both. “Prestige Estates and Brigade are our top picks,” the report stated.
However, the report also mentioned short-term issues. Prestige faced a cash shortage due to high spending in FY25. Brigade reported lower cash EBITDA margins. Despite these points, Nuvama expects these companies to benefit from future growth.
Nuvama notes improved profits for developers. This happened even as the market slowed slightly.
Cash EBITDA margins rose to 42%, up from 40% in FY24. Better efficiency and demand fueled this. Sales momentum has slowed a bit.
Profits increased year-over-year in FY25. Cash operating profits grew almost 16%. This occurred as buying activity gradually cooled. This slowdown is typical for a mid-cycle housing market.
The slower sales affected inventory and cash flow. Buying interest moderated, and unsold stock increased slightly. This led to more working capital being tied up.
Fewer developers had a negative working capital cycle. This number dropped from 12 in FY24 to nine in FY25. Operating cash flow decreased for some companies.
Developers also spent more on land and expansion. Land capital spending increased to 34% from 31% in FY24. These higher investments limited free cash flow.
Interestingly, debt levels did not worsen. Equity raises helped ten developers reduce their net debt year-over-year. Eight developers did so in FY24.