High input costs may hit profit of realty firms

Developers are likely to show lower revenues sequentially as project launches and sales were slow during the period

Bangalore/New Delhi: Real estate firms are expected to have had a lacklustre June quarter with lower profit on the back of tighter margins and higher inputs costs compared with a year ago.

DLF Ltd, India’s largest developer, likely posted lower revenue and profit on a year-on-year basis, according to a Mint poll of five brokerages.

In an otherwise subdued and seasonally soft quarter, Bangalore developers are likely to have stood out with robust sales and several project launches, while Mumbai developers may have seen a revival in the sales run rate with a rise in launches, though at a moderate pace, said analysts, although property prices continue to ride high.

While developers are again announcing an ambitious project pipeline, the implementation of those plans may bring cheer to the sector, which is still reeling under weak cash flows and slow lending.

 

Naveen Kumar Saini/MintThe realty index on BSE has dropped nearly 22.37% in the past year, steeper than the benchmark Sensex’s 7.86% fall.

DLF and Mumbai-based Oberoi Realty Ltd, now the second largest developer, will announce first-quarter earnings in the next few weeks.

Analysts on average expect DLF’s revenue to fall 5% year-on-year to Rs. 2,377.85 crore for the June quarter, and net profit to dip 24.3% to Rs. 271 crore largely due to higher interest expenses.

The Gurgaon-based developer reduced its net debt by a mere Rs. 33 crore in the March quarter and with its borrowings at Rs. 22,725 crore, DLF said in May that it planned to divest non-core assets and sell 12 million sq. ft of residential space to raise Rs. 4,000 crore and Rs. 6,500 crore, respectively. In the June quarter, DLF concluded the divestment of its shareholding in a hotel subsidiary (Adone Hotels and Hospitality Ltd) for Rs. 567 crore.

Brokerage Motilal Oswal Securities Ltd, said in its earnings preview that while the launches of the fourth quarter (Marchquarter) may drive cash flows as construction has been progressing well, sequential deterioration in operating cash flows are expected (excluding asset sales) due to the absence of major launches in the June quarter.

Of all the challenges facing the sector, the biggest is to launch the right product with right pricing so that it can bring buyers despite stiff competition in the market, which already has an existing inventory of unsold units, said an analyst at Emkay Global Financial Services Ltd, who didn’t want to be named.

“DLF has been trying to sell the non-core assets for quite sometime and there have been some names of buyers speculated every quarter by the market,” the analyst said. “However, we strongly believe that the cash from these asset sales will only resolve the problem in the short term. The debt will mount again unless the company revives cash flow from its core business which can meet fixed-cost and capital-servicing obligations.”

Oberoi Realty is seen reporting higher revenue year-on-year with an 18% rise to Rs. 253.78 crore in the April-June period, though net profit may dip 15.5% to Rs. 89.37 crore.

Analysts said the key elements to watch out for in Oberoi will be visibility on new project acquisitions and leasing momentum in office projects. “If launches do not pick up in the next two quarters, the sector will continue showing drop in profits and margins will remain weak. High interest rates and rising inventory will continue to add to problems,” said Sharan Lillaney, analyst at Angel Broking Ltd.

Sequentially, DLF is expected to post an average 6.9% drop and a 24.5% growth in revenue and net profit, respectively, for the April-June period, compared with the quarter ended March. Oberoi Realty is expected to post a 19% drop in revenue and a 21% drop in net profit for the June quarter compared with the preceding three months due to lower sales bookings, mainly from ready projects and a price hike in April impacting bookings in ongoing projects, analysts said.

With developers already battling poor sales and continuing liquidity pressure, profit and revenue will remain sequentially unchanged or may have dropped in April-June, although south India-based developers are expected to do better with sales.

Analysts are upbeat about the performance of Bangalore developers in general, and sales bookings of Sobha Developers Ltd and Prestige Estates Projects Ltd are expected to be strong on the back of continuing healthy demand in the Bangalore residential market and steady launches in the mid-income segment. Debt is expected to stay unchanged sequentially in the quarter in the wake of subdued presales or asset sales, said Param Desai, senior research analyst, Nirmal Bang Equities Institutional Research.

madhurima.n@livemint.com

 

Source:videos.livemint.com