You are here: Home » Companies » News
Business Standard

Earnings, RoE of realty firms to pick in 2013, says CRISIL

BS Reporter  |  Mumbai 

After years of pressure, earnings and return on equity of real estate are likely to pick in 2013, a report by CRISIL Research said.

CRISIL expects lower inflation, coupled with rate cuts, to help real estate "CRISIL Research expects the Reserve Bank of India to cut the repo rate at least 50 basis points (bps) next year. This is expected to improve affordability and provide the much-needed stimulus for demand. As a result, earnings and return ratios are expected to improve in 2013," the agency said.

According to CRISIL's analysis, profit before tax of real estate is expected to rise eight per cent, and the return on equity is likely to increase 100 bps on the 50-bp cut in interest rates, expected next year.

CRISIL Research also expects health absorption of homes to help realty firms. It expects absorption of new residential units across six key cities — Mumbai, National Capital Region, Pune, Bangalore, Chennai and Hyderabad — to increase at a compounded annual growth rate (CAGR) of seven per cent to 251 million square feet in the next two years.

Mumbai is expected to record the highest CAGR of 14 per cent over the next two years on pent-up demand. Capital values across regions are expected to remain at the first half of 2013 levels, and are anticipated to rise marginally in the second half of 2013.

CRISIL added expectations of a 50-bp cut in rates is expected to improve valuation multiples, which might return to the historical levels of FY2009-10. Currently, they are trading at an average price to book (P/BV) of 0.9x, and on a three-year and five-year P/BV of 1.0x and 1.1x respectively.

"Though most companies have good land banks, subdued demand has led to delays in monetisation. Also, high debt levels and rise in interest costs have impacted profitability; hence, valuations are under pressure. We believe pessimism in the real estate sector is largely factored in the current valuations," Crisil Research said.

CRISIL Research has assigned Nitesh and Parsvnath a valuation grade of 5/5, indicating strong upside (more than 25 per cent from the current market price). Ashiana, Phoenix and Bhartiya have been assigned a valuation grade of 3/5, indicating that current market price is aligned (±10 per cent from the current market price).

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Sat, December 22 2012. 01:17 IST