Respite for realty companies likely in December quarter

Real estate companies, battling low volumes and poor cash flows, should see improvement in the December quarter, due to launches and festive sales. The low base of the corresponding quarter of the previous financial year is also expected to help.

Companies in the sector are expected to see 14 per cent growth in sales and 16 per cent in net profit in the third quarter of 2012-13, data culled from six brokerages show.

In the September quarter, realty companies posted a decline of 23.5 per cent in net profit and 11.9 per cent in net sales, as buyers deferred buying homes due to high prices and interest rates.

FAVOURABLE SIGNS

• The low base of the corresponding quarter of the previous financial year is expected to help firms see improvement in the quarter
• Companies in the sector are expected to see 14 per cent growth in sales and 16 per cent in net profit in the third quarter of 2012-13
• Faster approvals for projects in Mumbai and the recent slew of launches there, in Bangalore and the National Capital Region are likely to have a positive impact

Faster approvals for projects in Mumbai and the recent slew of launches there, in Bangalore and the National Capital Region are likely to have a positive impact on the revenue and profits of realty companies. According to equity brokerage Maybank Kim Eng Securities, project launches rose 30 per cent to Rs 6,000 crore in the third quarter of FY13 and construction work has picked up in most ongoing projects, with the largest progress shown by DLF, Oberoi Realty and Sobha Developers.

“We expect funds for construction to come from a mild pick-up in new sales and selling of non-core investments,” Kim Eng analyst Anubhav Gupta said in a January 9 report.

“Fast-track project approvals which led to a slew of launches across markets, especially in Mumbai, and the encouraging offtake of some attractive project propositions augur well for near-term demand outlook,” Motilal Oswal analyst Sandipan Pan said in a recent report.

After two years, the Maharashtra government came out with new development rules which led to a number of launches in Mumbai. This and attractive propositions by developers have boosted volumes.

Some of the launches in the third quarter were DLF and Godrej Properties’ projects in Bangalore, DLF’s Sky Court in New Gurgaon, Mahindra Lifespaces’ in Hyderabad project and HDIL’s Virar Township. L&T Omkar got 400 bookings in four to five days of the launch of its slum redevelopment project in early September, with 150 waitlisted. In the same month, Godrej Properties sold 695 apartments spread over a million sq ft in its Godrej Summit residential project near the Dwarka Expressway, Sector 104, Gurgaon. Attractive pricing and products helped developers sell the stock quickly, consultants said. Most brokerages also expect the leverage positions of realty companies to improve due to success in the sale of non-core assets and easing in monetary conditions and uptake in operations.

“Developers, including DLF, Sobha and Indiabulls Real Estate, successfully sold non-core investments and land parcels to raise funds. The proceeds are being used to cut debt and fund construction costs,” said Gupta of Kim Eng Securities.

DLF, the country’s biggest developer, sold a Mumbai plot to Lodha Group for Rs 2,727 crore and Aman Resorts to its original promoter for Rs 1,637 crore. DLF has a target to reduce debt from Rs 21,200 crore to Rs 18,000 crore by the end of this financial year. DLF is expected to post a profit after tax of Rs 142 crore in the quarter, 44 per cent lower than the corresponding quarter of FY12. Its revenue is likely to go up by 1.6 per cent to Rs 2,068 crore in the third quarter.