Realty cos on a stronger wicket in Q3
The Economic Times, January 20, 2010, Page 21
Orbit May Lead With 220% YoY Spike In Net Sales, Mahindra Life May Post 28.7% Growth
Supriya Verma Mishra ET INTELLIGENCE GROUP
THE uptick in the quarterly sales of most listed players is perhaps an indication that housing demand may have picked up after a prolonged slump.
The improved show is also on account of the fact that qualified institutional buyers (QIB) have pumped in money which has helped boost liquidity levels for realty firms. By paring debt, these companies have been able to check interest outflows, making it easier to raise funds in the future.
All these are expected to be reflected in the upcoming December 2009 quarter results. On a quarter-onquarter(q-o-q) as well as year-onyear (y-o-y) basis, there should be an improvement in sales. In fact, it is not only just first-time buyers who are in the market, there is also an upswing in resale activity. Commercial and retail segments are seeing signs of a recovery but there’s nothing that firmly signals an upward trend.
The average of estimates of the ET Intelligence Group and four-brokerage houses show that the overall industry revenues are expected to grow by 59% on a y-o-y basis. On a q-o-q basis, industry’s revenues would grow at an average 16%.
“We expect the December quarter results to reflect the improving real estate sector outlook, aided by a lowbase impact, and a pick-up in residential sales,” said a Motilal Oswal report.
Out of all listed companies, Orbit Corporation is expected to lead the sector with a 220% y-o-y growth in net sales. This is because prices have inched up and more projects have reached the revenue-recognition stage. Another company, Mahindra Lifespaces Developers’ may also report a good set of numbers with a 28.7% y-o-y growth. This is on the back of booking of revenue from its Mumbai (Goregaon) and Faridabad (Haryana) projects. Though Unitech and Indiabulls Real Estate also launched new projects but not many of them have been able to cross the threshold level for revenue recognition.
DLF, the market leader, has undergone a restructuring activity whereby DLF Cyber City Developers (a 100% subsidiary of DLF) has been integrated with Caraf Builders in the ratio of 60:40. After the merger, DLF will hold a 60% stake in the integrated entity, while the residual 40% will be held by the promoters of DLF. This deal has provided a lot of clarity on the conflict of interest between promoter’s interests in DLF-DAL. This new entity may well open up the possibilities for an international listing.
Since several companies have new residential projects in the low-margin affordable category, operating margins are expected to be lower. Though, prices have risen, it could not compensate for the higher margin luxury residential projects. Thus, average EBIDTA for December 2009 is expected to decline by 2-5% to 45-52% as against 58% for September 2009. However, even as operating margins decline, net profit should be higher as realty firms have been able to access alternate sources of funds to lower their interest liability.
The overall PAT margins at 35-40% for the December quarter will be 300-350 basis points above the September 2009 average PAT margins of 32%. For example for Mumbai-based HDIL, a q-o-q upward movement of 25% in TDR prices will help improve margins. The low interest liability has resulted in higher net margins for Unitech but the shift towards affordable housing has had a pull-down effect. Other developers such as Anant Raj, IBREL and Phoenix Mills are expected to report PAT margins of over 30%.
After the gloom, the worst may be behind the real estate sector, primarily on account of its improved leverage position and a pick up in real estate demand. As is evident from the broader market mid-cap companies that are leading the growth momentum, mid-cap realty companies with a city-centric focus will be outperformers. Strong financials and faster delivery schedules will be the differentiators.
The Economic Times, January 20, 2010, Page 21
Orbit May Lead With 220% YoY Spike In Net Sales, Mahindra Life May Post 28.7% Growth
Supriya Verma Mishra ET INTELLIGENCE GROUP
THE uptick in the quarterly sales of most listed players is perhaps an indication that housing demand may have picked up after a prolonged slump.
The improved show is also on account of the fact that qualified institutional buyers (QIB) have pumped in money which has helped boost liquidity levels for realty firms. By paring debt, these companies have been able to check interest outflows, making it easier to raise funds in the future.
All these are expected to be reflected in the upcoming December 2009 quarter results. On a quarter-onquarter(q-o-q) as well as year-onyear (y-o-y) basis, there should be an improvement in sales. In fact, it is not only just first-time buyers who are in the market, there is also an upswing in resale activity. Commercial and retail segments are seeing signs of a recovery but there’s nothing that firmly signals an upward trend.
The average of estimates of the ET Intelligence Group and four-brokerage houses show that the overall industry revenues are expected to grow by 59% on a y-o-y basis. On a q-o-q basis, industry’s revenues would grow at an average 16%.
“We expect the December quarter results to reflect the improving real estate sector outlook, aided by a lowbase impact, and a pick-up in residential sales,” said a Motilal Oswal report.
Out of all listed companies, Orbit Corporation is expected to lead the sector with a 220% y-o-y growth in net sales. This is because prices have inched up and more projects have reached the revenue-recognition stage. Another company, Mahindra Lifespaces Developers’ may also report a good set of numbers with a 28.7% y-o-y growth. This is on the back of booking of revenue from its Mumbai (Goregaon) and Faridabad (Haryana) projects. Though Unitech and Indiabulls Real Estate also launched new projects but not many of them have been able to cross the threshold level for revenue recognition.
DLF, the market leader, has undergone a restructuring activity whereby DLF Cyber City Developers (a 100% subsidiary of DLF) has been integrated with Caraf Builders in the ratio of 60:40. After the merger, DLF will hold a 60% stake in the integrated entity, while the residual 40% will be held by the promoters of DLF. This deal has provided a lot of clarity on the conflict of interest between promoter’s interests in DLF-DAL. This new entity may well open up the possibilities for an international listing.
Since several companies have new residential projects in the low-margin affordable category, operating margins are expected to be lower. Though, prices have risen, it could not compensate for the higher margin luxury residential projects. Thus, average EBIDTA for December 2009 is expected to decline by 2-5% to 45-52% as against 58% for September 2009. However, even as operating margins decline, net profit should be higher as realty firms have been able to access alternate sources of funds to lower their interest liability.
The overall PAT margins at 35-40% for the December quarter will be 300-350 basis points above the September 2009 average PAT margins of 32%. For example for Mumbai-based HDIL, a q-o-q upward movement of 25% in TDR prices will help improve margins. The low interest liability has resulted in higher net margins for Unitech but the shift towards affordable housing has had a pull-down effect. Other developers such as Anant Raj, IBREL and Phoenix Mills are expected to report PAT margins of over 30%.
After the gloom, the worst may be behind the real estate sector, primarily on account of its improved leverage position and a pick up in real estate demand. As is evident from the broader market mid-cap companies that are leading the growth momentum, mid-cap realty companies with a city-centric focus will be outperformers. Strong financials and faster delivery schedules will be the differentiators.
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