Real estate developer Brigade Enterprises Ltd’s results for the March quarter indicate a strong recovery in sales. Net sales jumped 259% to Rs133 crore from a year ago. Sequentially, sales were higher by 103%.
The higher sales mirrors the overall recovery in the realty market in Bangalore. Brigade Enterprises sold 130 units during the quarter, compared with only 37 units in the year-ago period. But one must remember the March 2009 quarter was the worst-hit as residential unit sales plummeted across the country due to an economic slowdown.
According to a management executive, there is still a resistance to price increase. In fact, a steady volume offtake was visible from the June 2009 quarter, as the firm dropped prices by an average of 10%.
Brigade Enterprises, like other real estate firms, has cut costs in the last few quarters. Employee costs were down year-on-year (y-o-y) from 24% to 5%; other expenses, too, were down from 22% to 9%. Although land and project expenses increased in absolute terms, it was down as a percentage of sales from 86% to 69%. These measures trickled down into an operating profit of Rs29.1 crore, compared with Rs9.8 crore loss posted a year ago.
Among real estate firms, Brigade’s Bangalore-centric approach helped contain its losses during the downturn. It maintains a healthy debt-equity ratio of 0.6:1 without resorting to equity placements, which most large companies did to retire high-cost debt. But interest costs have risen by 44% and 30% y-o-y and sequentially, respectively.
Net profit more than doubled from Rs15.6 crore to Rs32 crore y-o-y. The company is certainly on the road to recovery. In November, it launched two projects in Mysore, where sales have just begun. Meanwhile, sales at its premium projects Metropolis and Gateway in Bangalore are also gaining momentum. Its focus on lease rentals from commercial property should bring in higher other operating income in the coming quarters. Analysts believe that its strategic move to ramp up execution and launch projects in the value segment will see faster revenue and earnings accretion in the next two years.
Brigade Enterprises shares trade at Rs138, which discounts analysts’ estimates of fiscal 2011 earnings of Rs10 per share about 14 times.
The stock enjoys a higher valuation due to its management credibility and viable scale of operations compared with industry peers.
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