Unsold inventory for top real estate developers scales new high in FY19

Rises to 30 months worth of revenue, up from 24 months a year ago

The country’s top real estate developers continue to add unsold inventory at a steady pace, leading to a deterioration in the industry’s financial ratios.

The top 25 developers, whose audited finances for FY19 are available, were sitting on unsold inventory worth nearly Rs 1.4 trillion at the end of March this year, up 19 per cent year-on-year (YoY). In comparison, the industry’s combined revenues were down 7.2 per cent in the last fiscal year, while net profits rose 7.7 per cent.

The inventory was equivalent to nearly 30 months worth of the industry’s revenues at the end of March 2019, up from 24 months the year ago, which has impacted its financial metrics. The gross debt to equity ratio rose to 0.95 at the end of March this year, while the interest coverage ratio, a key measure of debt servicing capacity, declined to 2.3 from 3.2 a year ago.

The companies in the Business Standard sample were sitting on a combined debt of Rs 91,000 crore at the end of March, up 8 per cent over the previous year.

Analysts say the industry’s total unsold inventory, including that of small unlisted builders, is even larger and will take longer than what the figures for listed developers suggest. 

“Our data suggests that there are nearly 1.25 million units of homes lying unsold all over the country. This inventory is worth around Rs 7.5 trillion. So your sample only covers around one-fifth of the entire market in the country,” says Pankaj Kapoor, managing director of real estate consultancy Liases Foras.

According to Kapoor, this was equivalent to nearly 46 months worth of the industry’s sales last fiscal. 

In other words, unsold inventory is a much bigger issue for unlisted, small and mid-sized developers.

Among individual developers, Macrotech Developers (formerly Lodha Developers) tops the charts with inventory worth Rs 26,800 crore at the end of March 2019, followed by DLF (Rs 22,000 crore), Housing Development & Infrastructure (Rs 14,600 crore), Prestige Estates (Rs 13,150 crore), and Indiabulls Real Estate (Rs 9,850 crore).

The annual trend in revenues of real estate developers and their unsold inventory

HDIL tops the chart in terms of the inventory to sales ratio. The company's unsold inventory at the end of March this year was nearly 21 years worth of its revenues in FY19. The company reported revenues of Rs 684 crore against inventory of Rs 14,580 crore last fiscal. Other major developers with a high level of inventory relative to their revenues in FY19 include Peninsula Land (149 months), Omaxe (44 months), Puravankara (43 months), and Kolte Patil Developers (39 months).

To their credit, there are quite a few large developers with manageable level of inventory, say analysts. For example, Prestige Estates’ unsold inventory is equivalent to 23 months of its sales. The ratio is 17 months for Godrej Properties, 21 months for Sobha, and 16 months for Oberoi Realty and Brigade Enterprises each.

The steady rise in the industry inventory is attributed to a sharp slowdown in offtake of new homes in recent years even as builders continue to bring new supply in the market. "This is a consequence of an economic slowdown that has translated into a wide gap between home buyers’ income and home prices," says G Chokkalingam, founder & MD, Equinomics Research & Advisory Services.