Realty Developers Face Cash Flow Strain as Housing Cycle Matures: Nuvama

Quick Summary

• Profitability: Indian real estate developers saw improved cash EBITDA margins of 42% in FY25, up from 40% in FY24, driven by a 16% year-on-year rise in absolute cash operating profits.
• Cash Flows: Despite steady profitability, cash flows weakened due to higher working capital requirements and shrinking free cash flow (FCF).Only four developers generated positive FCF in FY25 compared with eight in FY24.
• Market Dynamics: Sales slowed and unsold inventory increased as the housing cycle entered its middle stage. Nuvama Institutional Equities flagged rising capital intensity ahead due to construction activity pickup.
• Developer Trends: DLF led on both high margins and FCF generation. Prestige Estates, Godrej Properties, and Puravankara reported deficits amid increased annuity capex. Developers like Oberoi Realty relied more on operating profits for cash flow than external funding.
• Outlook: Margins are expected to stabilize with further pressure on working capital due to limited finished inventory supply and moderated house prices.

Image Caption: India’s real estate developers see rising profits but weaker cash flows in FY25
!India’s real estate profitability trends

Indian Opinion analysis

The analysis highlights critical shifts within India’s booming housing sector as it navigates the mid-stage of the housing cycle. Rising profitability reflects robust demand despite moderate sales growth; however, weakened free cash flow signals constrained liquidity amid growing working capital needs-a potential challenge for smaller or leveraged firms.

Key implications include heightened reliance on strategic management of inventories and financing decisions by developers as unsold stocks grow while price increases decelerate. With only a handful generating positive FCFs versus prior years, firms focused heavily on capex may face intensified operational risks going forward if demand does not pick up substantially.

Tracking market leaders such as DLF showcases resilience amid transitional challenges but also underlines divergence among players.Policymakers seeking to regulate urban housing patterns may find this phase a crucial turning point for interventions around unsold inventories or affordable segment incentives.

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