Tuesday, 19 April 2016

Realty firms likely to see muted sales, profits in March quarter

 Property market in Delhi NCR remains under pressure; Mumbai continues to see sales volumes only in select residential projects

Top real estate companies are expected to post muted sales and profits in the January-March quarter compared to a year ago due to limited project launches, tepid cash flows and weak consumer sentiment.
The property market in the national capital region (NCR) remains under pressure, while Mumbai continues to see sales volumes only in select residential projects. Demand for Rs.1 crore-plus houses is weak in Bengaluru and Pune, while mid-income housing continues to see reasonable offtake.
However, even as residential sales remain lacklustre, a key positive that has emerged over the past four quarters is a pickup in leasing activity for office space, especially in Bengaluru.
“New project launches remained subdued during the quarter, with developers focusing on clearing existing inventory rather than launching new projects at a time when demand is sluggish,” said Sandipan Pal, an analyst with Motilal Oswal Securities Ltd.
Some of the launches in the quarter were Godrej Properties Ltd’s second phase of The Trees in Mumbai, Mahindra Lifespace Developers Ltd’s Vivante in Mumbai and Sobha Ltd’s International City in Gurgaon.
“While a general slowdown prevails in real estate markets across the country, NCR remains the worst-affected,” Pal said.
So far this year, the BSE Realty Index has fallen 0.51%. On Monday, it closed at 1,337.41 on BSE, up 4.4% from the previous close. India’s top two developers, DLF Ltd and Oberoi Realty Ltd, are expected to post lower sales and profits for the three months ended March, due to the lack of new launches and limited revenue recognition from projects.
DLF, the largest developer by market value, may see its March quarter net profit fall by 16.5% to Rs.143.25 crore compared to the corresponding quarter a year ago, according to a Mint poll of six brokerages. Its revenue is likely to marginally rise by 3.61% to Rs.2,023.5 crore.
“While DLF’s revenue is expected to be driven by older projects, operationally, we expect a weak quarter in terms of pre-sales with no new launches. Net debt is likely to increase on account of weak operating cash flow. The key monitorable will be update on progress of promoters’ stake sale in the annuity business,” said a report by IDFC Securities Ltd.
DLF recently sought expressions of interest from top global investors to sell a 40% stake in its rental assets arm as it seeks to pare debt. The rental assets arm holds about 20 million sq. ft of leased-out office space and is valued at about $2 billion. Multiple investors are likely to buy stakes in the office rental unit.
Sequentially, DLF is expected to post a drop of 17.1% and 24.4%, respectively, in net profit and revenue, according to the Mint poll.
On Monday, shares of DLF rose 2.4% to Rs.124.95 on BSE.
Mumbai-based Oberoi Realty is expected to post a 14.1% drop in net profit to Rs.88.48 crore from a year ago, while its revenue may see a sharp drop by 31.3% to Rs.235.80 crore.
“Oberoi didn’t have any launch in the fourth quarter, and will see a decline in sales booking on a year-on-year and quarterly basis. The third quarter was an eventful one for Oberoi, which launched its big Borivali project then and witnessed revenue recognition from its Esquire project,” said Adhidev Chattopadhyay, an analyst at Elara Securities Ltd. Quarter-on-quarter, Oberoi Realty may see a 53.1% and 67.9% fall in net profit and revenue, respectively.
Oberoi Realty rose 17.7% to close at Rs.279.85 on BSE after The Economic Times reported that Swedish furniture retailing giant Ikea is in talks with the developer to buy a built-to-suit retail space for more than Rs.900 crore in suburban Borivali. Oberoi Realty told BSE said that no transaction has taken place yet.
Slowdown woes apart, developers also struggled to meet their annual sales guidance owing to delays in approvals, making it tough to launch projects on schedule.
“FY16 is the third consecutive year where Sobha Ltd has missed its annual sales guidance with 3.4 million sq. ft of sales worth Rs.2,010 crore versus guidance for 4 million sq. ft of sales worth Rs.2,600 crore,” said an Elara Securities report. Even Prestige Estates, which had set an annual sales target of Rs.5,500- 5,800 crore for 2015-16, revised it in the course of the year.
While Godrej Properties continued to sell well in projects such as the second phase of Trees, a key monitorable will be if its debt levels remain in check, said analysts. Developers such as Oberoi Realty and Kolte-Patil Developers Ltd, among residential players, have low debt even as sales remain tepid.
Bengaluru-based Prestige Estates and Brigade Enterprises Ltd have robust annuity portfolios mainly due to their office projects, coupled with a strong residential launch pipeline.

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