New Delhi: Real estate developers are expected to post a sharp slump in revenue and profit for the year ended 31 March on account of a decline in home sales and property prices and delayed completion of projects, forecasts by six brokerage firms show.
Also See Realty In Red (Graphic)
The net profit of five listed real estate firms likely declined by between 18% and 78% and revenue by between 26% and 41% in the year, according to estimates by Ambit Capital Pvt. Ltd, Centrum Broking Pvt. Ltd, Emkay Global Financial Services Ltd, India Infoline Ltd, Motilal Oswal Securities Ltd and Religare Hichens, Harrison plc.
However, Bangalore’s Puravankara Projects Ltd is expected to post an increase in revenue of 9%, according to the average estimate of three brokerage firms tracking the company
After a three-year boom, real estate prices in the big cities began stagnating in the summer of last year, as interest rate increases by the Reserve Bank of India (RBI) to dampen inflation pushed up borrowing costs. And as an economic slowdown deepened, property prices reversed course in the final three months of 2008.
While interest rates have dropped back to 8% in recent months from their mid-year peak in 2008, apartment sales have not picked up because of the slowdown and a cautious outlook for sectors such as software exports, Ambit Capital analyst Amit Agarwal wrote in a 24 March report.
A Mint review of reports published by the six brokerages showed fiscal 2009 revenue at DLF Ltd, India’s biggest listed developer, likely fell by an average of 35.86% and net profit by 38.59% from the previous year.
India Infoline Ltd, or IIFL, had the worst forecast for the company: That revenue will show a drop of 59.80% to Rs5,826 crore in the year gone by when the company reports results at the end of this month, from Rs14,493.83 crore in fiscal 2008. IIFL sector analyst Nemkumar, who uses one name, estimates that net profit fell nearly 70% to Rs2,361 crore from Rs7855.8 crore.
“We expect further decline in reported revenues and PAT (profit after tax) in fourth quarter of fiscal 2009, as our recent property tours suggest that pace of construction activity of most developers has reduced to a crawl, and this is weighing on their project completions and revenue recognition,” Nemkumar wrote in a 6 April report.
Realty developers across the country are experiencing project delays because of a cash crunch in the business, with banks becoming more cautious about lending to such firms as also customers buying homes on mortgage.
Execution delays have led to refund demands from some buyers who have already made payments in part for apartments.
In the last quarter, despite DLF announcing a price cut of between 10% and 25% at some of its projects in Bangalore, Chennai and Gurgaon, a few hundred buyers at its Garden City project in Chennai and Gurgaon’s New Town Heights demanded a refund of their money.
“DLF, in our opinion, will have to reverse more than Rs200 crore of revenues booked earlier, owing to discounts that it offered on pre-sold apartments and likely cancellations in its Chennai project,” Nemkumar said in his report.
In DLF’s case, analysts also attribute the estimated decline in revenue and net profit to a possible fall in revenue from sale of assets by DLF to DLF Assets Ltd, or DAL, a company owned by the family of promoter K.P. Singh.
In the third quarter ended December, DLF had said that it would slow down sales to DAL. Revenues from DAL have in the previous quarters accounted for 40-50% of DLF’s revenue and profit before tax.
“We expect year-on-year revenues to fall 66.7% in the absence of DAL revenues,” Rupesh Sankhe, an analyst at Centrum, wrote. “Clarification on DAL-DLF merger and private equity fund infusion in DAL coupled with DLF’s funding position will be the key focus area (during the results).”
Unitech Ltd, DLF’s closest rival by revenues, likely saw a decline of 26.22% in revenue to Rs3,157.66 crore and a 41.78% fall in net profit to Rs967.51 crore for the year ended 31 March, according to the average of estimates by six analysts.
Emkay has predicted sales at the firm will shrink by 33.58% to Rs2,842.58 crore for fiscal 2009, from Rs4,280.11 crore in the previous fiscal. Net profit is expected to have declined by 25.84% to Rs1,232.28 crore from Rs1,661.86 crore.
In the fourth quarter of fiscal 2009, Unitech launched three residential projects—two in Mumbai and one in Gurgaon—and two commercial projects in Mumbai after a gap of nearly six months, Siddharth Bothra, an analyst at Motilal Oswal wrote in a report dated 30 March.
Its residential project in Gurgaon, on the outskirts of New Delhi, is attractively priced at a 20-30% discount to similar projects in the vicinity, the report said.
Four brokerages forecast sales to fall by an average of 30.06% to Rs1,664.69 crore at Mumbai-based Housing Development and Infrastructure Ltd and net profits to nearly halve to Rs716.02 crore. Indiabulls Real Estate Ltd is expected to see sales shrink by 41.34% to Rs448.5 crore and profit by at least three quarters to Rs85.25 crore, according to two brokerages that reported their expectations for the firm.
Graphics by Sandeep Bhatnagar / Mint