Thursday, 20 October 2016

Real estate firms stare at dull June quarter results

Limited launches and a slow pick-up in demand, despite a marginal price correction in a few markets, may result in muted sales for real estate companies

Analysts are hopeful that the property market may recover in the second half of this fiscal year on the back of lower home loan rates. Photo: Pradeep Gaur/Mint

Mumbai: India’s largest real estate companies are likely to see muted sales and profit growth in the quarter ended 30 June owing to limited new launches and a slow pickup in demand, despite a marginal price correction in a few markets.
Analysts are hopeful that the property market may recover in the second half of this fiscal year on the back of lower home loan rates and other measures introduced by the government such as implementing the Real Estate (Regulation and Development) Act and amending real estate investment trust norms. So far this year, the BSE Realty Index has gained 21% compared with a 7.5% rise for the Sensex.
“Historically, it is a slow quarter. NCR (National Capital Region) market is not doing well at all. Hence, this will reflect in the sales of DLF as well,” said Samar Sarda, lead analyst (real estate), Kotak Institutional Equities, a brokerage firm.
Home sales in NCR, the country’s largest property market, continued to decline while sales in Mumbai picked up in a few areas. While demand for mid-income houses continued to grow, sales of homes priced above Rs.1 crore are yet to pick up even in markets like Bengaluru and Pune.
“Enquiries are … not being translated into actual purchases. However, commercial continues to do well,” said Adhidev Chattopadhyay, real estate analyst, Elara Capital Ltd.
Despite weak performance in the residential segment, commercial real estate continued to be the bright spot as leasing activity for offices, particularly in Bengaluru, grew year-on-year. But that is not enough to salvage the June quarter financials.
According to a report by brokerage firm HDFC Securities Ltd, aggregate sales of the top six listed companies, including DLF Ltd, Oberoi Realty Ltd, Bengaluru-based companies Prestige Estates Projects Ltd, Sobha Ltd and Brigade Enterprises Ltd, and Pune-based Kolte-Patil Developers Ltd, is likely to decline by 3.2% in the June quarter compared with a year ago. Aggregate profit is expected to fall by 9.1%.
“New launches have come down significantly as developers are focusing on monetizing existing unsold inventory. Inventory (has) come down to 42 months (six-quarter low). Prices are muted with 10-15% discount offers which have helped in a volume uptick,” the report said.
DLF may see a marginal increase of 0.3% from a year ago in its June quarter net sales to Rs.2,240.7 crore, a Mint poll of five brokerage firms said. Net profit is estimated to rise 14.7% to Rs.139 crore mainly owing to a rise in rental income, particularly from its newly launched Mall of India at Noida.
The company is currently in the process of selling 40% stake in its commercial property arm, DLF Cyber City Developers Ltd, to institutional investors to raise aboutRs.12,000 crore. This is expected to help reduce its net debt, which currently stands at around Rs.22,202 crore.
Mumbai-based Oberoi Realty is expected to fare better because of a pickup in its Esquire project, launched late last year. Analysts forecast a 40% jump in its net sales to Rs.296 crore while its net profit is expected to increase by 19.7% toRs.94 crore.
“Last year, Oberoi Realty saw two big launches after a gap of two years. Sales from Esquire made a big difference in the first quarter as the project started contributing only by the fourth quarter last financial year,” said an analyst with a brokerage firm on condition of anonymity.
Bengaluru-based companies such as Prestige Estates Projects, Sobha and Brigade Enterprises are expected to report marginal decline in volume on yearly basis, mainly due to lack of new launches, even as they have robust annuity portfolio coupled with a strong residential launch pipeline in Bengaluru, according to analysts.
Similarly, sales momentum for Godrej Properties Ltd is likely to remain slow due to limited new launches in the first quarter. During the period, the company launched three towers at its 43 acre township project Godrej Infinity at Pune. The project is jointly developed by Godrej Properties and local builders Oxford Group and Ekta World.