SENSEX NIFTY
Apr 17, 2012, 12.57 PM IST | Source: Moneycontrol.com

Realty: Expect a mix bag of hits & misses in Q4FY12

Nirmal Bang has come out with its report on real estate result preview. The research firm believes the volume recovery hinges on price correction in overheated markets, faster approvals for projects and quick project execution.

Nirmal Bang has come out with its report on real estate result preview. The research firm believes the volume recovery hinges on price correction in overheated markets, faster approvals for projects and quick project execution.

“We expect 4QFY12 results of companies under our coverage universe to improve sequentially on account of uptick in execution and projects crossing the threshold limit. New launches during the quarter were a mixed bag with Bangalore and Chennai continuing to witness strong absorption. Barring Sobha Developers and Prestige Estate Projects, all other companies have missed their FY12 project launch guidance, thereby resulting in a decline in FY12 pre-sales. Lack of asset sales and subdued pre-sales led most of the companies to miss their debt reduction targets. We expect companies under our coverage to post revenue growth of 18.5%, EBITDA growth of 26.3% and profit growth of 10.0% sequentially.”

New launches were a mixed bag: During the quarter, Sobha Developers (SDL), Prestige Estates Projects (PEPL) and DLF were very aggressive in respect of new project launches, leading to 14%, 46% and 32% YoY increase, respectively, in new launches in FY12. However DLF’s 4mn sq ft of new projects launched in 4QFY12 was skewed towards low-value plot sales (3mn sq ft). On the other hand, Mumbai property market continued to remain weak, resulting in no new launches by HDIL and Oberoi Realty in 4QFY12. Godrej Properties launched 2mn sq ft in 4QFY12 and 3.2mn sq ft in FY12 (37% YoY decline) as against the company’s guidance of 6-7mn sq ft.

Debt reduction to remain muted: We expect muted debt reduction in 4QFY12 on account of subdued pre-sales of all companies, barring SDL. Further, we expect reduction in debtors from Shantiniketan for PEPL, as the company focused on handover and also on improvement in leasing which will result in improvement in operating cash flow. Lack of asset sales by DLF will keep debt reduction muted. Also, HDIL ’s debt reduction will largely depend on cash collection from FSI sales.

Outlook: We believe the volume recovery hinges on price correction in overheated markets, faster approvals for projects and quick project execution. We expect South-based developers to outperform owing to better absorption level, stable inventory and better affordability. While share prices of most real estate companies are at a significant discount to our NAV barring GPL, we believe those having good visibility on new project launch/pricing strategy, well capitalised balance sheet and positive cash flow to be able to outperform. Our top pick is PEPL.   

Public holding more than 90% in Indian cos

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