Motilal Oswal has come with its March quarterly earning estimates for Real Estate sector. As per the research firm, real estate companies are expected to post revenue de-growth of 14% YoY (up 20% QoQ) and net profit to decline 13% YoY (up 11% QoQ).
Partial recovery on the back of initial hopes During 4QFY12, the BSE Realty Index recovered partially on expectations that the interest rate down-cycle would be initiated and easing of regulatory headwinds. With recent CRR cut of 125bp, the RBI has started the rate moderation cycle which could render much required boost to the operating and financial leverage of developers. Some recent policy actions have also raised hopes of regulatory logjams being eased. Nonetheless, liquidity management remains a big challenge for realty players in FY13, given high scheduled debt repayments, and modest support from operating cash flow. Expect sequential improvement in sales with uptick in new launches During the quarter, we expect to see improvement in fresh launches at NCR (Bangalore led the way in 2/3QFY12), which could be a strong catalyst for better sales among NCR based developers. The Mumbai market has started witnessing fresh launches, although not at the desired pace and we anticipate launches to pick-up meaningfully by early FY13 with required assimilation time of new DCR norms. However, with relatively better approval visibility, we expect the companies to ramp-up in execution leading to higher revenue booking - unless impacted by repayment pressure. Key expectations: We expect our universe of real estate companies to post revenue de-growth of 14% YoY (up 20% QoQ), EBITDA to grow 26% YoY (up 30% QoQ) and net profit to decline 13% YoY (up 11% QoQ). While we do not expect any significant reduction in the overall leverage level for our universe, events like HDIL's assets sales (based on media news), and fresh share issue by Godrej Properties could lead to debt reduction by these companies. Key factors to watch for: Response to new launches and progress in approvals for planned launches.Improvement in execution and customer collection run-rate.
Leasing velocity in the commercial vertical.
Progress in de-leveraging target and re-financing.
Any cash deployment in new project acquisition by developers with better liquidity. Attractive entry points for selected players We expect over next 12 months, the real estate sector's performance would depend on its ability to improve operating leverage with better asset utilization (new launches and sales) and Financing leverage (by scaling down adverse impact of debt). While macro-economic direction bodes for an increasingly supportive environment, the easing of operating headwinds at individual stock level would hold the key to out performance. We are sticking to our theme of preferring stocks with low liquidity risk or strong ability to refinance (financial leverage), city-centric projects and strong business model (higher certainty of improving operating leverage), and lower regulatory concerns. Oberoi Realty, Prestige, Phoenix Mills remain our preferred companies, while DLF is a play on the de-leveraging theme.
| (INR million) | ||||
| Company | Sales | Net Profit | ||
| Mar-12 | Var. % (YoY) | Mar-12 | Var. % (YoY) | |
| Anant Raj Inds | 1,161 | 83.1 | 320 | 4.7 |
| DLF | 24,781 | -7.6 | 3,125 | -9.3 |
| HDIL | 5,219 | -5 | 1,557 | -14.5 |
| Mahindra Lifespace | 1,728 | 5.5 | 377 | 23.6 |
| Oberoi Realty | 2,174 | -18.5 | 1,037 | -24.1 |
| Phoenix Mills | 520 | 11.2 | 252 | -7.2 |
| Unitech | 5,822 | -44.8 | 771 | -27.1 |
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