New Delhi: Property developers are expected to report a sharp slump in revenues and profits for the three months to December on weak home and office demand, and high financing costs, five brokerages have predicted.
Net profits of around 15 listed realty firms are expected to decline between 16% and 61%, and revenues between 18% and 20%, in the December quarter, against the same period in the previous fiscal, according to expectations put out by Macquarie Capital Securities (India) Pvt. Ltd, India Infoline Ltd, Religare Capital Markets Ltd, Motilal Oswal Securities Ltd and a unit of Citigroup Inc.
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Real estate prices in big cities reversed course in the last three months of 2008 after three years of a bull run as interest rates peaked mid-year because the Reserve Bank of India (RBI) raised the cost of money to dampen inflation.
The average earnings expectation for DLF Ltd, India’s biggest realtor by sales, is a 7.56% fall in sales and a 24.78% drop in net profit year-on-year (y-o-y). On a quarter-on-quarter basis, it is expected to post a 14.41% drop in sales and a 20.30% decline in net profit for the December quarter.
India Infoline has estimated that DLF’s December quarter revenues will drop 14% to Rs3,077.80 crore from Rs3,651.25 crore during the year-ago quarter. Its net profit is seen down 34% at Rs1,419.50 crore from Rs2,144.98 crore.
In its report, Motilal Oswal’s analyst Siddharth Bothra points out the importance of funding at DLF’s promoter-owned firm DLF Assets Ltd (DAL), to which the realtor sells its completed projects. The unit is close to finalizing fund-raising of $450 million (Rs2,205 crore), which might be announced this month, the firm said. In turn, such financing could lower DLF’s receivables and improve liquidity.
At the end of September, DAL owed DLF Rs4,800 crore and analysts doubt whether the unit will be able to meet those dues.
DLF’s share price has taken a severe beating since its listing in June 2007. On Tuesday, the company’s stock closed at Rs189.40 on the Bombay Stock Exchange (BSE), down 63.92% from its issue price of Rs525.
Weak demand from information technology, banking and financial services industry, too, has had a severe impact on pre-leasing of office space, with most developers reporting low vacancies, said India Infoline’s report. Firms such as DLF have around 40% of their revenues coming from office and commercial space. It is less than 10% for another realty firm Unitech Ltd, according to analysts.
Lower rentals and deposits will affect developers’ ability to service loans taken to build office spaces, India Infoline said. RBI last month allowed banks to restructure loans for commercial property without classifying them as non-performing assets if repayments have been delayed. This may help realtors tide over debt obligations until March, but large debt obligations in fiscal 2010 that starts on 1 April continue to be a concern, Motilal Oswal said in a 7 January report.
For Unitech, DLF’s closest rival by revenues, India Infoline has predicted sales to come down by 53% at Rs532 crore in the December quarter, from Rs1,142.10 crore in the year-ago period and net profit by 76% to Rs127 crore.
Unitech’s share price has crashed at least 93.5% from the 52-week high of Rs470 on 21 January 2008 to Rs30.50 on BSE on Tuesday.
Parsvnath Developers Ltd is expected to see a fall in its sales by 39.1% at Rs283.40 crore and a 79% decline in its net profit at Rs23.60 crore on a y-o-y basis, according to Religare. New Delhi-based Ansal Properties and Infrastructure Ltd is expected to see a 22.1% fall in its sales and a 51.7% decline in its net profit on a y-o-y basis, according to Citigroup.
Mumbai’s Housing Development and Infrastructure Ltd is expected to see a 4% increase in sales at Rs515.80 crore and a 14% decline in net profit at Rs231.20 crore, according to Macquarie Securities.
Indiabulls Real Estate Ltd is expected to see a 159% jump in sales at Rs97.90 crore and a 86% decline in net profit at Rs43.40 crore for the December quarter on a y-o-y basis, according to Macquarie.
Graphics by Ahmed Raza Khan / Mint