The real estate sector has been rallying for the last four day. The Nifty Realty is up 2% in today’s trading session. In the list of real estate sector stocks, the brokerage firm Nuvama remains bullish on select realty counters. As per the brokerage report, Prestige Estates and Brigade Enterprises are their top picks in this sector and the brokerage has given a ‘Buy’ call to these stocks.
According to the brokerage report, while the industry is entering the middle stage of the housing cycle, some developers continue to show resilience and growth opportunities.
Prestige and Brigade – why Nuvama is bullish
Within this broader context, Nuvama continues to prefer Prestige Estates and Brigade. The brokerage has reiterated a “BUY” on both names, citing strong positioning and long-term potential. “Prestige Estates and Brigade – each rated ‘BUY’ – remain our top picks,” it said.
However, it also noted some short-term challenges in its report. For instance, Prestige faced a cash deficit due to high annuity capex in FY25, while Brigade was on the lower end of cash EBITDA margins. Despite this, Nuvama believes these counters are well placed to capture growth as the cycle plays out.
Let’s take a look at what the brokerage say on this sector stocks –
Nuvama on Real Estate sector: Margins improve despite market cooling
According to the brokerage, one of the key positives has been the improvement in profitability across realty developers.
“Cash EBITDA margins improved to 42% (40% in FY24),” the report noted. This was driven by better operating efficiency and demand trends, although the momentum in sales has started to moderate.
Nuvama pointed out that profitability rose year-on-year in FY25, with overall cash operating profits up nearly 16%. However, this came alongside a gradual cooling in buying activity, which is typical of a mid-cycle housing market.
Nuvama on Real Estate sector: The working capital build-up
The moderation in sales velocity has had some impact on inventory and cash flow trends. As per the brokerage report, “typical of middle stage of a housing cycle, buying frenzy moderated and unsold inventory rose marginally, leading to working capital build-up.”
While 12 developers enjoyed a ‘negative working capital cycle’ in FY24, that number dropped to nine in FY25. Consequently, operating cash flow (OCF) slipped for several players.
Nuvama on Real Estate sector: Capex trends and debt reduction
Developers have also been more aggressive with land purchases and expansion. “Land capex rose to 34% (31% in FY24),” the brokerage said, adding that higher investments are keeping free cash flow in check.
Interestingly, despite this spending, debt levels are not worsening. “Aided by equity raise, net debt reduced YoY for ten developers (eight in FY24),” the report noted.