Realty companies` profit to grow at a slower pace

Q1 PREVIEW

Unitech HDIL Sales (Rs cr)3,9301,190560 Growth (%)27.93726 Net profit (Rs cr)2,060410211 Growth (%)35.311.794.1 OPM (%)68.247.962.4 Change (BPS)(190)(990)910 Source: Analyst estimates.  The operating profit margins may be hurt by higher input costs, climbing borrowing rates and a shift towards mid-income housing. The property sales have gone down by 15-20 per cent, while the input costs have appreciated 20-35 per cent and lending rates have risen by 50 basis points to 100 basis points, according to Religare Securities.  This has put pressure on the finances of developers. Both DLF and Unitech, the country's top developers, have moved towards mid-income housing in a bid to improve their revenues.  Though the real estate companies are not valued on a quarter-on-quarter basis, Batliwala & Karani (B&K) Securities expects property companies to post a 16 per cent decline in revenues and 17 per cent drop in net profit in the three months ended June 30.  "The fund-raising activity of most developers is on hold due to the adverse market conditions and delay in launches. Moreover, rising home loans have resulted in a decline in the number of transactions," B&K said in a report.  DLF, the country's largest property developer, is expected to post total revenues of Rs 3,930 crore in Q1, 28 per cent higher than the year-ago peirod. The company reported total revenues of Rs 4,306 crore in Q4' FY 2008.  The company is expected to report a profit of Rs 2060 crore in this quarter, 35 per cent higher than the corresponding quarter last year. It reported a net of Rs 2209.92 crore in Q4' FY 2008.  DLF's operating margin is expected to be 69.8 per cent in the June quarter of FY 2009, nearly 190 points lower than its margins of 71.7 per cent in the corresponding quarter last year. During FY 08, DLF forayed into the mid-income housing segment.  It launched projects in Chennai, Kolkata, Gurgaon and Indore at a 20-25 per cent discount to the prevailing market rates and has sold 9 million square feet of space in FY08, according to Motilal Oswal estimates.  The country's second largest developer Unitech is expected to post topline of Rs 1190 crore in the first quarter of financial year 2009, nearly 37 per cent higher than Q1' FY2008.  On a stand-alone basis, the company posted total revenues of Rs 1160 crore in Q4' FY2008. It is expected to post a net of Rs 410 crore, a modest 11.79 per cent growth compared to the corresponding period in the previous year.  The company posted a net of Rs 369.35 crore in Q4 of FY 2008. Unitech's margins are expected to be around 47.9 per cent in Q1'FY 2009, nearly 990 basis points lesser than its margins in Q1 of FY 2008.  The Delhi-based company followed its bigger rival DLF. It shifted its focus towards affordable housing and sold houses at Rs 35 lakh (1,200 per sq ft at Rs 2,700 per sq ft) in Greater Noida in the fourth quarter of FY 08.  HDIL, which is a leader in slum rehabilitation projects, is expected to post revenues of Rs 559.8 crore in the first quarter of FY2009, a growth of 26 per cent over the corresponding quarter. It is expecting a net of Rs 211.1 crore, a growth of 4.1 per cent over the last year.  The company posted a topline of Rs 775 crore on a net of Rs 708 crore in Q4 of FY 2008. However, HDIL's margins are expected to be around 62.4 per cent in Q1 of FY 2009, which are 910 basis points higher than the corresponding quarter in the previous year. The Mumbai-based company's interest burden may rise from Rs 10 crore to Rs 70 crore in the first quarter.  Reflecting the slowdown in property markets, the stocks of top real estate companies have shed value up to 50 per cent in the first quarter of FY09.  DLF shed 39 per cent, Unitech stock lost 38.20 per cent and HDIL lost 41.23 per cent in value.  "The stocks are trading significantly lower to their NAVs because of cost pressures. The realty companies are no longer able to sell their projects at staggering prices. This has delayed new launches, thereby limiting the cash flows,'' said an analyst with a leading Mumbai-based brokerage.