Why investors can home in on this large realty player

In the last three-four years, India’s realty segment has bounced back strongly after a prolonged period of lull (seven-eight years) before 2021. As the strong demand for larger houses post-Covid and hybrid working culture set in, large developers in top cities have seen traction across the board, more so in the premium and upmarket segments.

As a leading developer with strong presence in the ever-growing Mumbai Metropolitan Region (MMR) realty segment, apart from having a robust footprint in Pune and making initial inroads into Thane and Bengaluru, Macrotech Developers (Lodha) is a key residential player. The company is also increasing focus on areas such office spaces and retail, facilities management and digital infrastructure (warehousing and industrial).

At ₹1,178, the stock trades at 24 times its per share earnings for FY26, making it a reasonable bet for investors with a two-three year perspective, especially given the elevated valuations (50 times or higher) that most real estate companies trade at currently. The BSE Realty trades at a PE multiple of over 54 times.

Now, the stock is down nearly 30 per cent from its peak touched in June 2024. Investors can buy the shares of the company in small quantities at current prices and also accumulate on any declines linked to the broader markets. The recent corrective phase in the broader markets due to extended FII selling may provide further entry points.

Robust traction in the upmarket residential segment, visibility in its other business portfolios (mainly annuity-based) and healthy financials are positives for Lodha.

Over the period FY21-24, Lodha’s revenues grew at 33.7 per cent compounded annually to ₹10,320 crore, while net profits rose at a rate of 67.9 per cent to ₹1,610 crore in FY24.

The momentum has accelerated in the first half of FY25, with revenues increasing 62.5 per cent year on year to ₹5,470 crore, while net profits rose 136.9 per cent to ₹900 crore.

Lodha appears well-placed to achieve its target of a 20 per cent CAGR in pre-sales over FY24-26 and an improvement in return on equity from 17 per cent to 20 per cent over the same period.

Updates from the December quarter of FY25 suggest continuing strong traction. The pre-sales figure for the quarter was ₹4,510 crore, which is a rise of 32 per cent. Collections during the same period came in at ₹4,290 crore, representing a 66 per cent increase.

Serving the affluent category

Although the company has presence across segments in the residential realty space, it caters primarily to the upmarket and luxury customers.

The company has been around for more than 44 years and maintains a healthy track record of delivering residential projects within agreed schedules. It has delivered more than 65,000 houses and 100 million sq ft. It has 40 operating projects across MMR, Pune and Bengaluru.

The company enjoys premium pricing power in the markets it operates in due to the strong brand presence and timely execution. Lodha’s residential projects across cities typically priced anywhere from ₹2.5 crore to ₹13.5 crore.

Lodha seeks to complete projects to get them to the launch stage, typically by 9-12 months of the land acquisition being completed.

As of FY24, Lodha claims a market share of 10 per cent in MMR, 5 per cent in Pune and 2 per cent in Bengaluru.

According to a report from Anarock, around 36,200 units were sold in the MMR during Q3 of 2024, accounting for 34 per cent of national sales volume. Of the 26,000 units launched in the same period, a whopping 17 per cent was in the ₹2.5 crore-plus segment, while it was 10 per cent in the ₹1.5-2.5 crore segment. This shows the potential in the premium and luxury segments.

In Bengaluru, 54 per cent of the units sold were priced at ₹80 lakh to ₹1.5 crore, 5 per cent between ₹1.5 crore and ₹2.5 crore and a whopping 13 per cent at more than ₹2.5 crore, according to the Q3 FY24 Anarock report.

Other businesses

Although still in the nascent stage, Lodha’s other businesses are beginning to look up. Digital infrastructure – warehousing, logistics, data centres, light industrials – is the first. It has 6.5 million sq ft under development currently.

Property management (facilities management) and digital services is another division with a captive base of 65,000 households.

High-street retail is another key division.

Lodha is looking at an annuity income of about ₹500 crore from these divisions by FY26 and is targeting ₹1,500 crore by FY31.

Healthy financials

Lodha has a healthy balance sheet. It has a net debt-to-equity ratio of only 0.27 in H1FY25. The firm’s debt levels are down to one-third the levels at the time of the IPO. It compares favourably to many other large players in the industry.

The company enjoys a high EBITDA margin of 35 per cent (H1FY25), up from 30 per cent in H1FY24, thanks to its ability to execute lucrative projects. Its profit after tax margins are also robust at 16 per cent in H1FY25.