Real estate developers showed signs of bouncing back in 2012-13 after a difficult 2011-12. Financials of nine leading listed players showed a 25 per cent revenue growth and a healthy 27 per cent growth in aggregate net profits.
Completion of a larger number of residential projects, even as the commercial segment remained lacklustre helped most players report higher sales and profits.
Bangalore on the rise
Across the country, regions that have seen sharp price correction in recent years such as Bangalore saw strong pickup in demand for residential housing as buyers cashed in on affordable prices. National Housing Board’s Residex index showed that prices in the Bangalore market are on the rise, in the last three quarters. Mumbai and NCR also recorded higher prices according to the NHB index, but demand remained subdued.
Growing debt and stretched finances on account of interest payments have dogged many real estate players in recent years, but the problems now seem to be abating. Debt levels stabilised and most builders showed interest expenses tapering off towards the year-end. In the first quarter of FY13, interest expense increased by over 23 per cent on aggregate, over the same period the previous year. In the last quarter of FY13, expense, however, decreased by around 3 per cent compared with last year. Players such as Unitech and Mahindra Lifespace Developers saw an over 20 per cent decline in interest payouts in the March quarter from December. In FY12 in contrast, interest costs had increased throughout the year.
While borrowing rates for developers have not fully reflected the rate cuts by RBI, players managed to save on costs by reducing unsold inventory of property and refinancing high cost debt. DLF, for instance, sold parcels of land and other non-core assets to raise cash and lighten its debt burden.
Margins, however, came under pressure. Barring a few exceptions, most listed players witnessed a dip in operating and net margins compared with last year. DLF’s profit margin dropped as the company adopted more conservative accounting policies in line with new standards. Unitech’s standalone margins also dropped, primarily as revenue fell more than expenses.
Double-digit growth
On a consolidated basis, DLF reported a fall in revenue. Most large developers, however, saw double-digit revenue growth in the latest March quarter, with exceptional growth reported by Prestige Estates and Indiabulls Real Estate. The former saw a large proportion of projects come into the books due to crossing the threshold for revenue recognition.
Bangalore-based developers such as Sobha Developers, Prestige, Puravankara, saw steady quarter-on-quarter growth in revenue and profits through the year. Demand has been picking up in this region and builders reported higher sale prices and quicker sales.
Mumbai-based Oberoi Realty managed to grow its revenue by 55 per cent and profits by over 65 per cent even though prices NHB’s price data for Goregaon, their primary market, showed that prices did not recover to last year’s levels. The company’s operating profit margins fell from over 65 per cent in FY12 to around 55 per cent in FY13.
Retail mall developer Phoenix Mills reported revenue growth of around 20 per cent and profit growth of around 27 per cent, on a standalone basis. Mall occupancy and average rents increased over the year.