Thursday, June 17, 2010

Realty to build on revival, growth seen back on track

Realty sales volume seems to have been affected on a quarter-on-quarter (QoQ) basis due to a significant hike in prices, especially in affordable housing projects, which are no longer within the buyers’ budget. Builders have again started to focus on premium housing projects, with prices rising by 20-40% from the lows a year ago. Construction activities on a number of projects are on full swing. A strong year-on-year (YoY) revenue and profit growth across the sector is most likely, more so because of alow-base effect. However, the QoQ performance may not look great, especially in terms of profitability.

Most developers have managed to stay afloat with asset sales and funds raised from qualified institutional placements. These will help complete projects under construction and also launch new projects. The forthcoming March ‘10 quarter results are expected to show this in the financial performance of companies. Pre-sales of new projects have continued, bringing a topline visibility for the next 2-3 years. There has been a traction in the commercial segment as well. However, the retail segment continues to be a laggard. Recovery in IT, hotel and manufacturing will continue to boost commercial demand. “The overall demand is believed to be lower than what was in Q2 and Q3 FY10. Prices were robust across NCR (appox. 15% below peak levels) and Mumbai (nearing peak levels). Prices in Bengaluru continued to be soft,” said an Edelweiss report.

The average of estimates by ET Intelligence Group and six broking houses shows that the overall industry sales are expected to double on a year-on-year (YoY) basis. On a QoQ basis, industry sales would grow at an average 12-15%. Out of all listed companies, Delhi-based Anant Raj industries will be an outperformer with the highest YoY gain. Rental income from its IT park will add significantly to its topline. However, since most of its asset sales and project launches have happened in the past six months, it can’t be a benchmark for the sector.

Unitech, Orbit Corporation, Sobha, and DLF are likely to maintain their growth. “DLF has completed the merger of DAL with DLF Cyber City and listing now appears to be the next right step,” said an IDFC-SSKI report.

Companies have consciously been trying to clean their balance sheets of high leverage. Unitech, for instance, has achieved sales of over 13-million sq ft in nine months ended December ‘09 and is now focusing on execution of new launches and has scaled back its earlier target of 20-million sq ft of sales for FY10.

EBIDTA continues to grow on a YoY basis, but not on a sequential basis. With increasing share of premium housing compared to the low margin-affordable category, EBIDTA margins have improved significantly from 22% in same quarter year ago to about 38% in the current quarter. However, even as operating margins improve, they could not be translated drastically to the net profit. The overall PAT margins for the March quarter will be 200-250 basis points above December ’09 PAT of 24%. For example, for Mumbai-based HDIL, there hasn’t been any noteworthy movement in TDR prices, thus margins remain subdued.

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