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With delivery delays, inventory levels across India have risen significantly. The pan-India inventory of residential stock is now well above the comfort level of 14-15 months. Photo: Ramesh Pathania/Mint
With delivery delays, inventory levels across India have risen significantly. The pan-India inventory of residential stock is now well above the comfort level of 14-15 months. Photo: Ramesh Pathania/Mint

DLF, Oberoi Realty report drop in profits

DLF sees a 27.8% fall in net profit, Oberoi Realty net profit declines 48%, reflecting a tepid property market

Mumbai/New Delhi: Two of the nation’s top five real estate companies— DLF Ltd and Oberoi Realty Ltd—reported a drop in profit in the September quarter on Wednesday, reflecting a tepid property market—the result of a slowing economy and declining home buyer and corporate interest.

India’s largest real estate firm DLF Ltd reported a 27.8% fall in net profit to 100 crore for the September quarter, while net sales dipped 4.1% from a year ago to 2,039.54 crore.

Profits of New Delhi-based DLF have been hit by high interest rates and slowing home sales. DLF, burdened by 20,369 crore of debt as of 30 June, has been exiting businesses not considered essential to real estate development as part of a strategy to cut debt. India’s largest real estate developer by market value, sold two non-core assets worth 147 crore in October. DLF divested a majority stake in a subsidiary for 79.8 crore and completed the sale of its wind turbines in Rajasthan for 67.44 crore.

It also agreed to sell its 74% stake in DLF Pramerica Life Insurance Co. Ltd, its life insurance joint venture with Prudential International Insurance Holdings Ltd, to Dewan Housing Finance Corp. Ltd and its group entities for an undisclosed sum in July. Earlier, it sold its 150MW wind turbine business in Gujarat to Bharat Light and Power Pvt. Ltd for 325.38 crore.

Shares of DLF lost 0.5% on Wednesday’s closing while the Sensex gained 0.5% at 21,033.97 points.

Oberoi Realty, India’s second largest developer by market value, posted a 48% drop in net profit for the July-September quarter due to weak sales in the Mumbai market.

Net profit of the Mumbai-based company which has projects in residential, commercial and hospitality segments, dropped to 64 crore from 124.4 crore a year earlier and net income dropped 26.7% at 189 crore.

However, stand-alone profit rose 95% to 114 crore. Among the segments, sales of real estate dropped 31.6% to 162 crore while hospitality improved 28.5% to 27 crore for the quarter ended 30 September. “Of late, the Mumbai market has experienced some sluggishness in volumes for under-construction projects though there continues to be demand for ready projects," said Vikas Oberoi, chairman and managing director, Oberoi Realty.

Godrej Properties Ltd (GPL), the Mumbai-based realty arm of the Godrej Group, reported a 5% increase in net profit in the July-September period.

Consolidated net profit for the company which has real estate projects in 12 cities across India increased to 34 crore from 33 crore a year earlier.

For the same period, income from operations increased 32% to 306.5 crore. Weak market conditions and lack of new launches during the period resulted in moderate sales.

It added only one new project—1.2 million sq. ft of saleable area in Gurgaon in the National Capital Region.

“The market has been sluggish across cities and segments. This has impacted some of our projects and it is a tough operating environment," said Pirojsha Godrej, managing director and chief executive officer of Godrej Properties.

Bangalore-based Puravankara Projects Ltd also reported an 8% drop in net profit for the September quarter. While profit fell to 46 crore from 50 crore a year earlier, income from operations increased 9% to 298 crore.

Wednesday’s results appeared to point to a trend. Mahindra Lifespace Developers Ltd (MLDL), part of the Mahindra group, announced on Tuesday an 18% drop in its net profit in the June-September quarter due to an increase in project costs.

The consolidated net profit for the company which has residential projects in metro cities and special economic zones in Jaipur and Chennai, dropped to 19.38 crore from 23.61 crore a year earlier. Income from operation increased 51.6% to 196.2 crore. Cost of projects for the quarter ended on 30 September increased by 80% to 115.1 crore.

According to property experts, prices have remained flat in most of the markets across projects.

Terming the current market dynamics of high price and low volume unsustainable, Godrej said, “the chances of a price correction are highest in the last four years".

However, developers are cautiously optimistic about festive season sales. “We don’t expect robust sales during the festive season. It may take a few more months to revive and probably after (the 2014 general) election the sentiments will improve," Godrej said.

“With the buoyancy in the stock markets being one of the key drivers of buyer sentiment, we expect the momentum to catch on gradually for the real estate sector and further strengthen our sales," Oberoi said. “The overall market is not good and that is reflected in the earnings," said Amit Anwani, an analyst at Kantilal Chhaganlal Securities Pvt. Ltd. “Balance sheets have strained and debt servicing has become difficult. Many companies have announced new projects for the second quarter. But very few were actually launched as the demand dropped and approval delays increased."

With delivery delays, inventory levels across India have risen significantly. The pan-India inventory of residential stock is now well above the comfort level of 14-15 months, said a September report by real estate consultant Jones Lang LaSalle India (JLL).

Mumbai has an inventory of close to 48 months, Delhi of 23 months and Bangalore of 25 months. These are close to the levels of 2007, when the residential real estate market’s inventories were at an all-time high.

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