Cash flows of realty developers face pressure as housing cycle enters mid-stage: Nuvama

India’s real estate developers witnessed rising profitability in FY25, but cash flows came under strain as working capital requirements rose and free cash flow (FCF) generation weakened, according to a deep-dive analysis by Nuvama Institutional Equities.

Nuvama’s study of 23 developers showed that industry-wide cash EBITDA margins improved to 42% in FY25, compared with 40% in FY24, as absolute cash operating profits rose 16% year-on-year. However, with sales momentum moderating and unsold inventory inching up, a trend typical of the middle stage of a housing cycle—developers saw a build-up in working capital.

Only nine of the 23 developers reported a release of working capital in FY25 versus 12 in FY24. “Consequently, operating cash flow faltered a bit in FY25,” the brokerage said.

Divergence across developers

Nuvama noted that cash flow generation varied widely across developers. While DLF, Lodha, and Rustomjee reported high cash EBITDA margins, peers such as Puravankara, Sobha, and Brigade were at the lower end of the spectrum.

On the FCF front, DLF generated the highest free cash flow (cash PAT less land/annuity capex), followed by Shriram Properties and Kolte-Patil. In contrast, Prestige Estates, Puravankara, and Godrej Properties recorded deficits, largely due to elevated annuity capex.

At an industry level, FCF weakened in FY25, with only four developers generating positive free cash flow compared with eight in FY24. Signature Global, Kolte-Patil, and DLF improved their FCF positions year-on-year, while Sobha, Lodha, and Prestige reported deterioration.

The analysis also revealed that while three-fourths of cash flows at Oberoi Realty and Sunteck Realty came from operating profits, Godrej Properties and Aditya Birla Real Estate leaned heavily on external funding. Despite low leverage levels, 11 of the 23 companies raised equity funds in FY25, reflecting continued debt aversion.

Outlook: Margins steady, working capital intensity to rise

Looking ahead, Nuvama expects profitability to stabilise but flagged that working capital intensity could rise further due to a pickup in construction activity, moderation in home-buying frenzy, and low levels of finished inventory.

“We believe the increase in house prices will moderate, capping a margin improvement. Given land capex is likely to remain high, this should keep cash flow generation in check,” the brokerage said.

Within its coverage, Nuvama retained ‘BUY’ ratings on Prestige Estates and Brigade, calling them its top sectoral picks.

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