Riding on the revival in Mumbai's property market, one of the most expensive in the world, stocks of two city-focused developers, Orbit Corporation and Housing Development & Infrastructure Ltd (HDIL), were the highest performers in the realty pack over the past year.
While the stock of Orbit Corporation, the country's 10th largest realty company by market value, rose five times, that of HDIL, the country's third largest, went up by over three times in the past year. Both stocks hugely outperformed the broader indices, BSE Sensex and BSE Realty Index, by similar margins in the past year.
The stock of DLF, the country's largest and over 30 times bigger than Orbit in terms of market value, rose 126 per cent, shows the data on realty stocks.
| BUILDING UP | |||
| Company | March 12, ‘09 | March 12, ‘10 | % change |
| Orbit Corp | 41.45 | 281.75 | 579.73 |
| HDIL | 64.00 | 303.89 | 374.83 |
| Parsvnath | 31.25 | 1,16.80 | 273.76 |
| Ansal Prop | 21.85 | 76.84 | 251.67 |
| Sobha Dev | 77.80 | 269.64 | 246.58 |
| Puravankara | 34.29 | 103.55 | 201.98 |
| Unitech | 25.05 | 74.20 | 196.21 |
| Omaxe | 40.04 | 93.60 | 133.77 |
| DLF | 136.85 | 310.35 | 126.78 |
| Indiabulls Real | 85.60 | 174.40 | 103.74 |
| Ackruti City | 1075.65 | 542.40 | -49.57 |
| Sensex | 8343.75 | 17166.62 | 105.74 |
| BSE Realty | 1309.41 | 3387.92 | 158.74 |
"Investors are bullish about Mumbai realty. The property demand in Mumbai has picked up faster than other cities and price rise is also higher,'' says Suman Memani, associate vice president of Religare Capital Markets. Property prices in the prime areas of Mumbai had risen up to 30 per cent since June 2009 on the back of increased demand from home buyers. During 2008-09, home prices had gone down by 30 per cent from their peak, as home sales had almost come to a standstill, reflecting worldwide economic slowing.
Analysts say Mumbai developers can make margins of 80 per cent, depending on when the land was bought and whether it was acquired under redevelopment projects. Normally, a real estate project has margins of 35-40 per cent. "In the National Capital Region, for Rs 5,000 a sq ft you can buy a decent property but in Mumbai (for that price), you have to travel out of the suburbs," Memani adds.
Analysts feel since these stocks were beaten down significantly, their recovery was faster. For instance, the stocks of Orbit and HDIL went down 93 per cent and 84 per cent, respectively, during calendar year 2008.
But Ramashraya Yadav, head of finance at Orbit, says: "If that had been the case, why have others not risen as much as we did?"
Lesser debt woes
Realty analysts say since the liquidity concerns of both companies had reduced, their stocks bounced back. HDIL raised Rs 1,150 crore by issuing non-convertible debentures to retire its high-cost debt. Now, it has debt of Rs 3,200 crore and a debt to equity ratio of 0.45.
Hari Prakash Pande, vice president, finance, says HDIL's average cost of funds is 12 per cent and does not have any repayment due for the next two years. it raised Rs 1,688 crore in July 2009 through a qualified institutional placement (QIP) and has planned another one soon.
Orbit's debt went up to Rs 600 crore in the current financial year. But, finance head Yadav says the debt to equity is only around 0.85 (any ratio below one is considered healthy in this sector) and it does not have any repayment scheduled soon. Orbit raised Rs 310 crore through both a QIP and from investors in a recent project.
Change in tack
Both companies changed strategy to cash in on the improved demand for residential apartments. Orbit, which did not launch a single project in calendar year 2008, launched four projects in the prime South Mumbai region, where prices ranged between Rs 22,000-Rs 25,000 a sq ft. The company made around Rs 800 crore from sale of apartments in 2009 versus Rs 300 crore in 2008.
"We are shortening our recovery cycle from the time we acquire land and sell apartments. We have focused on prime South Mumbai projects,'' says Pujit Aggarwal, managing director of Orbit. Of the 170,000 sq ft of homes Orbit sold in the third quarter of 2009-10, nearly 70,000 sq ft was in South Mumbai.
HDIL is converting itself into an integrated realty player from its TDR (transferable development rights)-focused model. It launched 7.8 million sq ft in FY 2010, in Mumbai suburbs such as Andheri, Kurla, Nahur and so on, after having launched none at all in the earlier year. It has planned to launch six million sq ft yearly for the near future.
Says HDIL's Pande: "We launched our projects 10 per cent below market prices and sold 90 per cent of our apartments. Since our land cost is low, we can price our products aggressively.''
Analysts also say the increase in TDR prices, which have risen from Rs 900 to Rs 2,500 a sq ft, will add to its prospects. While 80 per cent of their 2009-10 revenue came from sale of TDRs, the aim is to reduce this to 60 per cent in the coming year.
"With healthy cash flows and a stronger balance sheet, post the fund raising and debt refinancing, we see HDIL well placed to capitalise on the improving demand scenario," SSKI IDFC analysts said in a recent report.
However, analysts have a word of caution for investors. "If markets (both stock and properties) continue to do well, these stocks may still go up; otherwise, there is an inherent risk involved in buying them,'' says a Mumbai-based analyst who did not want to be named.
