New Delhi: Large realty firms are likely to report lower revenues and net profits in the three months to June from a year ago because of lower demand, lower prices and huge debts.
Analysts, however, expect that when the companies report results for the June quarter, there might be some improvement from the preceding three months, signalling that demand might have returned slowly and financial restructuring has helped.
An economic revival and strong demand for budget housing are driving the upturn, Kunal Lakhan, an analyst with Kisan Ratilal Choksey Shares and Securities Pvt. Ltd (KR Choksey) wrote in a recent report.
The average of five of these shows that DLF is expected to post a net profit of Rs566.16 crore on revenue of Rs1,356.02 crore in the three months to June. Ahmed Raza Khan / Mint
Transaction volumes in housing have picked up as developers launched projects at prices 25-40% lower than market value, he wrote.
The response to recent mid-income housing launches, too, has been positive, resulting in developers launching a record 35 million sq. ft of projects in the last few months, wrote analysts Siddharth Botra and Mansi Trivedi from Motilal Oswal Financial Services Ltd in a report this week.
Of this, firms including DLF Ltd, Unitech Ltd, Indiabulls Real Estate Ltd, Puravankara Projects Ltd and Housing Development and Infrastructure Ltd (HDIL) have sold 16 million sq. ft of residential area since March, which is 44% of the launched floor space.
Demand for office space in the June quarter is also seeing a revival, recording a growth of nearly 65% over the preceding quarter, a report by real estate consultant Cushman and Wakefield Inc. earlier this week noted, with hotspots being Bangalore and Mumbai.
Mint surveyed result expectations of six brokerages— Edelweiss Securities Ltd, Centrum Broking Pvt. Ltd, Citigroup Global Markets India Pvt. Ltd, India Infoline Ltd, ICICI Securities Ltd and KR Choksey.
The average of five of these shows that DLF is expected to post a net profit of Rs566.16 crore on revenue of Rs1,356.02 crore in the three months to June. Although that represents a 64.74% fall in revenue and a 69.62% fall in net profit for India’s biggest realty firm by market value on a quarterly or sequential basis, the developer will see a marginal 0.37% increase in revenue and a huge 255.96% increase in net profit. Median estimates peg the year-on-year contraction at 69.89% for sales and 78.84% for net profit.
“We expect fall in revenues (from a year ago) owing to absence of DAL revenues,” Rupesh Sanke, an analyst with Centrum wrote in a report. Still, volume offtake in affordable housing projects at Bangalore, Gurgaon and Chennai is expected to help revenue numbers, he wrote. DAL, short for DLF Assets Ltd, a company owned by the promoters of DLF that used to buy the realty firm’s completed assets, used to account for up to 40% of the listed realtor’s revenues until December.
DLF expects to report results on 31 July, a spokesman said, but this has not been finalized.
In the quarter gone by, Unitech may see a 42.45% decline in revenue to Rs606.72 crore and a 57.18% decline in net profit to Rs201.1 crore from a year ago. Median estimates put the fall at 71.63% and 46.13%, respectively. On a sequential basis, average sales and earnings could have risen by 57.18% and 28.10%, respectively.
Asset sales at Unitech—which sold its main office building in south Delhi for Rs500 crore and a hotel in Gurgaon for Rs200 crore—in the June quarter “may result in reported numbers being higher than our expectations”, Centrum’s Sanke wrote.
In the last few months, realty firms have restructured debt and infused fresh equity. Unitech, for instance, raised $900 million (Rs4,383 crore) through two sales of shares in the June quarter. The average debt-equity ratio of key real estate companies has declined significantly from 1:1 to 0.4:1, Motilal Oswal analysts wrote.
HDIL is likely to post an average net profit of Rs147.36 crore on revenues of Rs356.23 crore in the April-June months—a fall of 37.50% and 53.66%, respectively, from a year ago, show three analyst estimates.
Indiabulls Real Estate, India’s third largest listed developer, could stand out in its June results. It is expected to see a ninefold jump in earnings to Rs61.7 crore, according to the average of five brokerage reports. This performance comes on the back of brisk sales in Gurgaon and Chennai, H. Nemkumar, an India Infoline analyst, noted in his report.