Some respite seen for realty firms in Q3

Realty firms to see 14% growth in sales, 16% growth in net profit

Real estate companies, which were battling low volumes and poor cash flows, can see some improvement in December quarter due to launches and festive sales during the period. The low base of the corresponding quarter of the previous fiscal is also expected to help the realty firms.

Realty companies are expected to see 14% growth in sales and 16% in their net profit in the third quarter of FY13, data culled from six brokerages show.

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

Faster approvals for projects in cities such as Mumbai and the recent slew of launches in Bangalore, national capital region and Mumbai are likely to have a positive impact on the topline and profits of realty companies.

According to equity brokerage Maybank Kim Eng Securities, project launches have gone up 30% to Rs 6,000 crore in the Q3 of FY13 and construction work has picked up in most of the ongoing projects, with most progress being 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 the near term demand outlook,” Motilal Oswal Analyst Sandipan Pan said in a recent report.

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

Some of the key launches in 3QFY13 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 and so on.

The success of some of the projects is expected to have a positive effect on project launches in the December quarter.

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 near the Dwarka Expressway, Sector 104, Gurgaon. Attractive pricing and product preposition helped developers sell the stock quickly, consultants said.

Most of the brokerages also expect the leverage positions of realty companies to improve due to success in 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 its 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 the current fiscal.

DLF is expected to post profit after tax of Rs 142 crore in Q3 of FY13, which is 44% lower than corresponding quarter of FY12. Its revenues are likely to go up by 1.6% to 2,068 crore in Q3 of FY13.

Analysts also expect FY14 to be a good year for realty companies owing to possible cuts in interest rates.

“There are further chances of rate cuts following the central bank’s meeting. Developers launched most projects in Gurgaon and Bangalore. In 3Q, DLF launched its 1st project of FY13. This has significantly improved earnings visibility for FY14,” Gupta said.