This Real Estate Stock Has A 33% Upside Potential, Good Stock To Buy

Solid pre-sales

Macrotech saw strong pre-sales in Q4FY2022 to help achieve FY2022 target. The pre-sales for Q4FY2022, stood at Rs. 3456 crore, rising by 37% y-o-y (up 33% q-o-q) that led to overall pre-sales of Rs. 9024 crore for FY2022 achieving the pre-sales guidance of Rs. 9000 crore for FY2022 in India.

"Strong pre-sales was aided by preponing of property registrations of account of additional 1% metro cess on stamp duty from April 1, 2022 on properties in Mumbai, Thane, Pune, Nagpur and Nashik. Additionally, pre-sales in UK projects stood at Rs. 1700 crore plus with overall Rs. 5300 crore pre-sales achieved during FY2022," the broking firm has said.

Robust collections and de-leveraging to help

Macrotrech reported Rs. 2,843 crore collections during Q4FY2022, which were up 36% y-o-y (up 34% q-o-q).

"During FY2022, the collections rose 70% y-o-y to Rs. 8,596 crore. Expected strong net collections (90% of gross collections), operating cost spends (lower than Rs. 1000 crore), interest expenses (Rs. 300 crore) and debt repayment of Rs. 586 crore would lead to pre-tax cash flows of around Rs. 700 crore, which would more than suffice for expenditure related to land, approvals, JV/JDA investments (expected at Rs. 300-400 crore per quarter) and future de-leveraging," the brokerage has said.

Favourable state government policies

On March 23, 2022, the Maharashtra state government passed a bill, under which it extended the stamp duty waiver for properties on resale from one year to three years. Stamp duty will now be paid only on the difference in price of a property and not on complete amount for three years. The development is expected to lead to higher investor participation (20% share as per CREDAI) boosting secondary sales and increasing property registrations in the state.

33% upside potential from current levels

According to Sharekhan Macrotech has corrected around 20% over trailing two months led by Russia-Ukraine crisis impacting the broader markets, rising key commodity prices such as steel, cement and increasing signs of interest rate hardening going ahead. "However, we expect the company to continue to benefit from its leadership positioning in the lucrative Mumbai Metropolitan Region (MMR), which is expected to sustain residential sales traction going ahead," Sharekhan has said.

Industry consolidation to benefit the company

According to Sharekhan, further, industry consolidation is expected to benefit the company owing to its scale of operations.

"The company's large land reserves provide long-term sustainable growth visibility. Company's balance sheet is expected to further improve led by strong cashflows generation expected from residential projects. Hence, we retain a positive view on the stock and expect a potential upside of 31-33%," the brokerage has said. The stock of Macrotech Developers last closed at Rs 11,34 on the NSE.

Key risk

According to Sharekhan, a slowdown in real estate demand especially in MMR and Pune is a key risk to its call. "Unfavourable macro-economic indicators like rise in interest rates can dampen demand," the brokerage has said.