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Slow sales, liquidity stress to dampen Q1 realty earnings

Slow sales, liquidity stress to dampen Q1 realty earnings
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First Published: Tue, Jul 19 2011. 12 59 AM IST

Graphic by Yogesh Kumar; photograph by Ramesh Pathania/Mint
Graphic by Yogesh Kumar; photograph by Ramesh Pathania/Mint
Updated: Tue, Jul 19 2011. 12 59 AM IST
Bangalore/New Delhi: Top realty developers saw rising property prices crimp demand for residences in the three months ended June, hurting sales, and are headed for tougher months as they struggle to execute projects, say analysts.
DLF Ltd and Unitech Ltd, India’s largest real estate companies by market value, are expected to have continued their run of weak sales in the April-June quarter, according to a Mint poll of five brokerages.
Overall sentiment in the real estate sector continues to be negative as bank lending to developers remains tight and input costs rise in addition to the slowing sales.
The Bombay Stock Exchange’s realty index has dropped about 36.55% over the past year, whereas the benchmark Sensex index has fallen 0.30% on Monday.
DLF and Unitech will announce financial results for the June quarter in the next two weeks.
Graphic by Yogesh Kumar; photograph by Ramesh Pathania/Mint
DLF is expected to report a 16% drop in revenue over the January-March quarter though net profit is expected to climb 10%.
Forecasts for DLF point to progress in non-core asset sales and debt reduction, according to a Motilal Oswal Securities Ltd report. DLF’s margins should improve on the back of recognition of plotted sales in Indore and Gurgaon, India Infoline Ltd said in its report.
Unitech is projected to post a 21% drop in revenue for the June quarter over the preceding three months, but a 26% rise in net profit.
“Sales volumes have been low on account of high realty prices across key markets such as Delhi-NCR (National Capital Region) and Mumbai,” said Parikshit Kandpal, senior research analyst at Karvy Stock Broking Ltd. “Cash flow stress would continue for developers in Q1 (first quarter) due to high leverage and unaffordable prices. Execution may be a challenge as a tightened liquidity situation continues to plague the sector.”
On a year-on-year basis, DLF is expected to post a 16% drop in net profit to Rs.345.2 crore for the June quarter despite a 13% jump in revenue to Rs2,442 crore, on an average. Unitech’s profit is forecast to decline 14% to Rs152.82 crore on a 4% drop in revenue to Rs594.12 crore for the same period.
“While DLF is being aggressive with its divestment plan, which is critical for its cash flows, Unitech has been selling from its launches, but this will not generate enough liquidity for the company,” said a senior analyst with a Mumbai-based brokerage, who didn’t want to be identified.
Unitech has launched 6-6.5 million sq. ft of the 10 million sq. ft of development it had lined up for launches in the first nine months of 2011. The remaining projects in Gurgaon, Ambala, Hyderabad and Bangalore are awaiting approvals, Motilal Oswal said in its report.
Mumbai, India’s most valued property market, has been slow in awarding project approvals since the end of 2010 when a controversy broke out over the floor space index or construction rights that are offered to developers in lieu of building public parking spaces.
With few projects getting approvals, fresh supplies of residential and commercials spaces have been constrained. Prices, too, are yet to see a visible correction.
The commercial segment, though, put up a stronger showing in information technology (IT) centres such as Bangalore, Chennai and the Delhi-NCR as lease rentals stabilized and leasing activity remained strong.
Mumbai-based Housing Development and Infrastructure Ltd saw renewed momentum in the June quarter in its Mumbai International Airport Rehabilitation project, with the Mumbai Metropolitan Region Development Authority beginning to shift slum dwellers in the first phase of the project area to a temporary compound.
This could have a positive impact on the pace of execution of later phases of the project’s development, says a report by Motilal Oswal.
Among smaller firms, Oberoi Realty Ltd and Anant Raj Industries Ltd (ARIL) are better placed, say analysts. “Oberoi is almost a zero-debt company and operates in Mumbai only,” said Sharan Lillaney, research analyst, Angel Broking Ltd. “Demand from IT and ITeS (IT-enabled services) companies in the office space segment has grown and ARIL will benefit from that.”
madhurima.n@livemint.com
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First Published: Tue, Jul 19 2011. 12 59 AM IST