Profit expected to fall 90%, top lines 66% in Q4, say analysts.
The last quarter of the 2009 fiscal is expected to be a washout for property companies. Data culled by leading stock brokerages show that the net profit of these firms is expected to see an average fall of 90 per cent, while the top lines are expected to go down by 66 per cent.
The fall is being attributed to slower sales compared with the last quarter of the 2008 fiscal and the fall in property prices. According to research agency Liases Foras, property sales have dropped to a third in big cities like Mumbai from their peak in 2007, while prices have fallen 35-40 per cent.
After a hiatus of three-six months, property developers like DLF, Unitech and HDIL have launched projects at prices 20-30 per cent less than the market rates in the fourth quarter. Developers claim good demand for mid-income projects. However, on a yearly basis, their numbers are expected to fall after January because they follow the percentage completion method. This means they book revenues based on progress of construction. The possession of apartments is 18-36 months away.
The operating profit margins of property companies are expected to fall by an average of 1,000 basis points in the March quarter, as developers see price cuts and lower realisations from property sales and rentals. However, some companies like Unitech and Orbit may improve their margins due to asset sales and change in the product mix.
According to a Centrum Broking report, office rentals have fallen 15-20 per cent in the National Capital Region (NCR) and are set to fall by another 15-20 per cent. The vacancy level in malls, nationally, is expected to be about 9 per cent. The NCR had 25 per cent vacancy at the end of 2008.
“Commercial real estate, especially IT SEZs, has been suffering with vacancies increasing and rentals coming off sharply. We expect this to continue till business sentiment on the whole improves,” Kejal Mehta, an analyst with Prabhudas Lilladher, said in a report.
In the third quarter of FY 2009, net sales of property companies have fallen by an average of 59 per cent, while the net profit has fallen 71 per cent and operating profit margins over 700 basis points, a study of 14 listed property companies reveals. During the March quarter, banks have cut home loan rates by 175-200 basis points.
But analysts say the new demand is not sustainable. “We believe higher volumes were a result of bunching of demand and perceived bargaining and, hence, unsustainable in the long run,” said Edelweiss analysts Aashiesh Agarwaal and Akshit Shah in a recent report.
Though property developers such as DLF, Unitech, Parsvnath, HDIL and others have rolled over loans after the central bank allowed developers to restructure loans till June 2009, analysts say realtors may find it difficult to service their debt if the real estate market does not pick up in the near term.
Unitech, which owed Rs 2,500 crore by March 2009, repaid around Rs 500 crore in January and rolled over Rs 1,400 crore. DLF, the country’s largest developer, which had to repay Rs 4,300 crore by June 2009, refinanced Rs 2,000 crore and raised another Rs 2,300 crore through various ways like bond sales and rent discounting. The KP Singh-promoted DLF is expected to post a net profit of Rs 338 crore in the last quarter of FY 2009, nearly 85 per cent lower than in the corresponding quarter last year. The company’s net profit in the last quarter of FY 2008 was Rs 2,2076 crore. The absence of DAL (DLF Assets) revenues is expected to hit the net profit and top line of DLF in Q4 of FY 2009. The company’s total sales are expected at Rs 1,035 crore, nearly 76 per cent less than the December quarter of fiscal 2008.
DLF used to sell its commercial assets to group company DAL, which owes around Rs 5,400 crore to DLF, and the company is said to have ended its asset sale to DAL in Q4 of FY 2009. Analysts attributed the drop in operating margins to aggressive foray into affordable housing, which carries lower margins. Its operating profit margins are expected to be 54 per cent, over 1,100 basis points lower than its margins in the corresponding quarter of the 2008 fiscal. The company’s operating margins were 65.64 per cent in Q4 of FY 2008.
Though the downturn has affected Unitech’s net profit and top line, its operating margins are expected to improve (see table) due to sale of assets such as a stake sale to Telenor and sale of a Gurgaon hotel property.
The company got Rs 1,250 crore through the 67.25 per cent stake sale in its telecom arm, Unitech Wireless, to Norway’s Telenor.
Unitech also sold its Gurgaon hotel to an investor in New Delhi for around Rs 235 crore, of which it has got 45 per cent of the proceeds.
Mumbai-based developer Orbit has also improved its margins due to high margin projects, like a housing project in South Mumbai.
