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Tepid sales to impact real estate companies’ March quarter results

A lull in approvals and a drop in the number of launches may still hurt their performance
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First Published: Wed, Apr 10 2013. 10 35 PM IST
The realty index on BSE lost 2.21% in the past 12 months, while the exchange’s benchmark Sensex gained 5.83%.  Photo: Ramesh Pathania/ Mint
The realty index on BSE lost 2.21% in the past 12 months, while the exchange’s benchmark Sensex gained 5.83%. Photo: Ramesh Pathania/ Mint
Updated: Wed, Apr 10 2013. 11 05 PM IST
Bangalore: Although real estate firms focused more on project execution and debt reduction in the March quarter, high inventory, a lull in approvals and a drop in the number of launches may still hurt their performance for a while.
South India-based developers such as Prestige Estates Projects Ltd and Sobha Developers Ltd may outperform companies from other regions because of improved absorption and better affordability, while India’s largest developer DLF Ltd needs to boost sales, a Mint poll of four brokerages showed.
After the Reserve Bank of India pared policy rates twice by a quarter percentage point twice this year, buying sentiment may improve, Prabhudas Lilladher Pvt. Ltd said in an April report.
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The real estate market in India has been depressed for more than a year because of high interest rates and a slowing economy, but most property developers, already burdened with debt, have not lowered prices. The realty index on BSE lost 2.21% in the past 12 months, while the exchange’s benchmark Sensex gained 5.83%.
DLF’s performance would continue to be dull and it is expected to see a 52.3% year-on-year drop in net profit in the three months ended March to Rs.101.36 crore. Revenue may also drop by 30.5% to Rs.1,819.97 crore.
While lack of revenue recognition during the quarter by DLF would reflect in a decline in numbers, debt would come down by Rs.1,500 crore sequentially as the proceeds from the sale of Aman Resorts is reflected in the fourth-quarter earnings.
The launch of DLF’s luxury residential projects, Magnolias II and Park Place II should be closely watched, Edelweiss Securities Ltd said in a report.
Sales continue to soften due to weak investor demand in India’s largest property market, the national capital region, Edelweiss said. Fresh project launches by big developers remained weak in Bangalore, but Mumbai sales, which were subdued in the past six-seven quarters, have shown signs of a recovery.
Measures taken by developers such as strategic launches in core markets, selective capital expenditure, buying land and launching projects in phases will bear fruit in the next few quarters, according to Sandipan Pal, an analyst at Motilal Oswal Securities Ltd.
“While it is taking 2-3 years for the overhangs emerging from older strategies to settle, we expect a steady 2014, with easing of operational constraints and better liquidity outlook,” said Pal.
India’s second largest developer Oberoi Realty Ltd is expected to see a 10.8 % drop in net profit in the three months ending March to Rs.128 crore while revenues would see a marginal rise of 3.26% to Rs.263 crore compared with the same period a year ago.
Environmental clearance for its suburban Mulund project, launch of the Worli project and new project additions would be the key things to watch out for in Oberoi Realty, analysts said.
Oberoi Realty is expected to post a 4.76% and 8.03% drop in sequential net profit and revenue, respectively. Its numbers are expected to be marginally lower sequentially, because its projects Splendor and Splendor Grande in suburban Mumbai are nearing completion (with cash flows getting less) and a delay in revenue recognition of Oberoi Esquire, analyst reports said.
Sequentially, DLF’s net profit is expected to drop by 61.9% and revenues to rise by 34.6%. The drop in net profit is primarily because of an other income component (of Rs.830 crore) in its December quarter earnings from a sale of mill land in Mumbai.
The outlook for the sector looks positive, with performance of firms to be driven by strong sales, improvement in cash flow and deleveraging, according to Param Desai, research analyst at Nirmal Bang Equities Pvt. Ltd. “Further, any macro tailwinds such as a cut in interest rates and equity flows to the sector can be positive triggers,” Desai said in a an April report.
Developers in Bangalore will report a strong quarter aided by strong pre-sales. In case of Prestige Estates, the recent fresh equity issuance will boost the company’s finances.
Sobha Developers reported strong March quarter sales of 1.07 million sq. ft worth Rs.670 crore, said a 3 April note by Religare Research. While Sobha remains confident of holding high inventory, risks exist in the form of weak local markets leading to short-term cash-flow mismatch and limited scope of further launches and hence weak momentum, the report says.
A scale-up in execution will be crucial for most companies in the country, which would reflect in improvement in revenue booking or cash collections, said Motilal Oswal’s Pal. “Unitech’s guided ramp-up in construction would be a factor to watch for,” he said.
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First Published: Wed, Apr 10 2013. 10 35 PM IST
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