India Property: 2Q results- Who won who lost? Numbers in brief: JPMorgan

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• 2Q results snapshot- Sep-Q results were a mixed bag for the Indian
property sector. At PAT level DLF/DB Realty met expectations, UT/
Sobha underperformed and HDIL/IBREL outperformed. 2Q is
seasonally weak and the effect of monsoons and commonwealth games
had an impact on NCR companies’ results.


• In general developers are banking on a seasonally strong 2H…-
Most companies have achieved 40-50% of our full year pre-sales
estimates and largely 40%+ of our full year PAT estimates, implying
incrementally numbers may not have large downside risks for FY11.
Commentary coming out from managements in most analyst calls
pointed to increases in launches and sales over the next 2 quarters. 2H is
seasonally strong and given the strength in the primary market most
developers are confident of achieving their pre-sales estimates. IBREL
has been the clear out-performer in terms of bookings last-Q thanks to
the 350+ apartments sold in the Lower Parel project.

• … but there is some slow down in debt reduction plans- ex DLF
which has a stated program for net debt reduction going forward,
incrementally, most other developers seem to be talking down their net
debt reduction program, as operating cash flows are now selectively
being used to buy land. DBRL is likely to see the maximum increase in
debt going forward on account of payment for its Bandra project.

• Investment view- We had turned slightly cautious on the sector in early
Oct purely on valuations (refer to note : Realty Check:
Recent rally has been sharp, time to take a breather). Post a 17%
correction since then we would advise investors to selectively look to
add some Mumbai developers, specifically IBREL and HDIL which are
trading below their forecast FY11/12 book and have shown decent
progress in operating trends.


2QFY11 results: Mixed bag
2Q results were a mixed bag for the Indian property sector. DLF delivered earnings
largely in line with the expectations and Mumbai based developers HDIL, IBREL
and DB Realty exceeded expectations; however Unitech and Sobha (adjusted for
land sales) reported weak results.

Weak Sep-Q results for NCR developers were primarily on account of
strong/extended monsoons this year. Further, labor was pulled off for commonwealth
games thereby impacting execution in Sep-Q.


Guidance pointing to stronger 2H
Most companies have achieved 40-50% of our full year pre sales estimates and 37-
50% of our full year PAT estimates. Most developers are guiding to a meaningful
scale up in launches and sales over the next two quarters. Given 2H is seasonally
strong (given festive periods) and the strength in the primary market most developers
are very confident of achieving their pre-sales estimates which in general are 10-20%
higher than our forecasts.

IBREL has been the clear out-performer here achieving ~80% of our contract sales
estimate primarily driven by sales in Lower Parel sky suites (350 units sold) project
in Sep-Q.



Debt reduction plans are slowing down…
Most companies with the exception of DLF/Sobha remained silent on further net
debt reduction. DLF/Sobha reiterated their debt reduction plans via a combination of
operational cash flows and asset/land sales. Most other companies however have now
started to look at buying land selectively funded via operational cash flows. Further,
we expect DB Realty will see maximum debt increase going forward going forward
on account of payment for its Bandra project/other new land acquisitions.


Relative Valuations
On relative valuation, Mumbai based developers HDIL and IBREL appear cheap to
us on P/B basis. This is despite positive surprise from these companies on earnings
and improvement in operational trends. On our least favorite valuation metric (NAV)
basis too, both the companies are trading at meaningful 30-40% discount to our
estimates.