Realtors building up hopes of revival on sequential rise in Q1 profit

Realtors building up hopes of revival on sequential rise in Q1 profit
The Hindu Business Line, August 8, 2009, Page 4

Moumita Bakshi Chatterjee, New Delhi

Even as the sales and profitability of real estate companies continue to trail the year-ago levels by a huge margin, for some realtors at least the first quarter earnings have provided a glimmer of hope. Builders such as DLF Ltd, Sobha Developers, Parsvnath and HDIL have managed a sequential rise in net profit or revenue in the just-concluded quarter, bolstering the industry’s claims that there is a change in sentiment and that demand is beginning to pick up.

The talk of recovery is clearly in the air. “We are seeing a better offtake in demand for housing loans and the real estate activity in specific cities has risen marginally, thanks to the focus on low- and mid-income housing,” says Mr Kapil Wadhawan, Chairman of Dewan Housing Finance Corporation, whose first quarter loan disbursements at Rs 774 crore was 63 per cent higher than the year-ago period.

Loan schemes

A senior SBI official said that attractive loan schemes, combined with the price correctionand new launches in the affordable category, had helped. “The monthly disbursements are good, and we have been making extra efforts to market the loan products… Overall, we have been targeting Rs 1,500 crore sanctions a month, and we have exceeded the target,” said the retail banking official. SBI had set a benchmark in February when it announced an eight per cent interest rate for the first year, for housing loans up to Rs 30 lakh.

Sustaining momentum

But analysts are waiting to see if the property transaction volumes can be sustained over the next six-nine months. “The coming months will be critical in determining the fate of the real estate industry. There was a pent-up demand in the market which fuelled the sales in the first quarter. The question is, can that momentum be sustained,” says Mr Shailesh Kanani, an analyst with Angel Broking.

Even now the buyer interest is limited to the residential space, that too ‘affordable’ housing, and the analysts feel that a similar uptick in commercial real estate — which continues to face an oversupply situation — could still be a few quarters away. Moreover, the second quarter of the fiscal is generally seen to be weaker owing to monsoons and Shradh period, when buying or selling of property is considered inauspicious by the Hindus.

But builders such as DLF feel that the first quarter marked a positive start to FY10 with the “worst behind”. In a recent call with investors, the DLF Vice-Chairman, Mr Rajiv Singh, said that business had stabilised and there were signs of recovery. “Real estate will come back in 6-12 months where it had left off… There are enquiries in the commercial space but we are six months away from seeing the enquiries convert into transactions. In the malls, the customer traffic is up and by end of 2009, retailers will start committing to growth option,” he said.

Higher PAT

For DLF, on a quarter-on-quarter basis, both net profit and revenue jumped up 149 per cent and 29 per cent respectively. DLF’s smaller rivals such as Parsvnath, Sobha Developers and HDIL too posted a higher PAT quarter-on-quarter, although the profitability on year-on-year basis tanked for all these companies. Last week, Delhi-based Parsvnath Developers registered over 81 per cent year-on- year fall in its consolidated net profit for the first quarter ended June 2009 to Rs 13.81 crore. The total revenue also declined 69.3 per cent year-on-year to Rs 115.29 crore. But, quarter on quarter, the PAT at Rs 13.81 crore reflected a 19 per cent rise compared with the fourth quarter of FY09 (January-March). Revenues increased nearly five-times on a quarter-on-quarter basis; the total revenue was Rs 24.09 crore in the fourth quarter.

Sobha Developers saw its first quarter net profit and revenue rise 76.3 per cent and 16 per cent respectively over the previous quarter (Q4 FY09). In the case of HDIL, the net profit for the quarter ended June 2009, was 73.6 per cent higher than the last sequential quarter.