Since April 2009, realty stock prices have not only bounced back but doubled from their lows. The Unitech scrip which was beaten down from Rs 112 in October 2008 to Rs 26 in March 09 is now trading at Rs 116.7. Similarly, the giant in the segment, DLF has almost doubled after touching a low of Rs 147 in March. Housing Development and Infrastructure (HDIL) has quadrupled to Rs 276. The BSE Realty Index is up 135% from March, outperforming the Sensex by at least 45 per cent. CHECK
The rally in stocks is supported by several factors which signal a turnaround in the sector as a whole. According to a report by Motilal Oswal Securities, about $52 billion worth of land transactions have been announced during the second quarter of FY2010. Property prices, which had fallen by 20-30% since 2008, are showing an improvement. Prices in central upmarket areas in metros such as South Mumbai, Greater Kailash (New Delhi), MG Road (Bangalore) and Boat Club (Chennai) are up by 5-10%. Lower home loan rates are kickstarting a gradual recovery in residential projects.
The party for the sector began with the Qualified Institutional Placements (QIPs). Investors who bit the bait got shares at dirt cheap valuations. Companies meanwhile got funds to bail themselves out from near-insolvency.
Since April, real estate developers have raised $2.8 billion through equity sales, mainly to retire high-cost debt. Some like Unitech also sold non-strategic assets such as schools and hotels to improve cash flows. On average, among listed companies, net debt/equity ratio has improved from 1.5 in March to around 0.4.
Although the sector is now out of the woods, there will be a lag before it translates into better earnings. With price realisations yet to improve in residential property and momentum yet to build up the commercial segment, Q2 FY2010 will see sluggish top line, net asset value (NAV) and profits in most front runners.
While DLF revenues might drop 50% from the year ago period, operating profit margins could be lower by 10% or so. The company is, however, confident of selling Rs5500 crore of assets during FY2010. Net profit could improve by around 30%, according to analysts. For DLF, a strong land bank with 80% of it located in and around large cities is a strong positive. Besides, on the commercial and retail segment, it has a strong lease portfolio.
Analysts expect Unitech revenues to be lower by around 30% at around 670 crore for Q2FY2010, compared to the year ago period. Net profit is expected to be lower by 50%. But, the company’s focus on the mid-segment where the recovery is reportedly faster than the premium segment will accelerate growth in the next couple of years. Likewise HDIL, which has a different ambit of operations specialising in slum rehabilitation projects, has seen good response to its new launches. However, analysts expect robust growth in revenues and profits only from FY2011 as the company’s accounting policy recognises revenues only on completed projects.
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