Rising interest rates to take a toll on realtor’s Q1 show
The June quarter ’08 results for the real estate sector are expected to be lackluster. According to the estimates of brokerages, performance is likely to be much lower than the corresponding quarter in the previous year. Rising interest rates, tightening monetary policy and fall in property prices are cited as some of the concerns for the sector.
The sector is also expected to witness pressure on margins. Both small as well as large realty players are expected to post dismal performance. “In Q1FY09E, we expect companies to struggle given the difficult operating environment. We expect realty companies to face difficulty in booking incremental sales; focus will shift towards executing ongoing projects” said an ICICI securities report. Reduced unit sales are likely to result in a drop in net sales. Growth in the overall industry sales is likely to be 39% on a year-on-year (YoY) basis. This is much lower compared to the triple digit growth reported by many of the players in the earlier quarters.
However, analysts expect that out of all the listed companies, only Indiabulls real estate may see a triple digit growth given the lower base effect. On YoY basis, revenues for DLF, HDIL and Sobha are estimated to grow at 27%, 23% and 27% respectively. On a standalone basis this growth seems to be decent. However, it is lower as compared to what these players were showing during the time of their initial public offers.
Though sales growth might be good, margins are expected to be under pressure, particularly EBIDTA margins. Companies may witness about 5-10% average drop in EBIDTA margins on account of high input costs and lower realisations. For Delhi based developer Unitech, EBIDTA margin is anticipated at 20%. The number is much lower at 10% for its peer, Parsvnath.
The situation at the bottomline doesn’t seem to be any different. With alternate sources of funds getting dried up, builders are facing huge cash crunch. Higher working capital loans are eating into the net profits. Developers with highly leveraged balance sheets would be the worst hit. However, the companies, which have tweaked their business model to increase volumes, appear to be better placed than the other players.
DLF, Puravankara and Peninsula Land are expected to report PAT margins
upward of 30%.
The overall PAT margins for the June quarter are expected to be at 30%.
The expectation of a somber performance has been looming large on the performance of the real estate companies on bourses in last couple of months. The BSE realty index has fallen by 43% since April’08 as against the drop of 20% in the Sensex.
