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India Equity Research Reports, IPO and Stock News
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Q1FY12 was a weak quarter for the realty sector with Y‐o‐Y revenue
growth of 8.7% being offset by 19.5% Y‐o‐Y decline in profit, clearly
reflecting dual pressures of rising input and interest costs. We continue to
maintain our ‘Underweight’ stance on the estate sector in light of high
interest rates, margin pressures and burgeoning debt levels seeing no
signs of abating over the next two quarters. We prefer companies with
exposure to high visibility rental assets, low gearing levels and
transparency in operations. Oberoi Realty and Phoenix Mills are our top
picks.
Volumes steady; rising input costs/interest rates hurt profitability
Although the sector posted steady operational performance Y-o-Y with revenue surging
8.7%, Y-o-Y EBITDA decline of 7.5% and profit dip of 19.5% across an universe of 14
companies clearly reflects the double whammy of rising input costs and higher interest
rates. While sales volume at the pan-India level was steady, Mumbai property market
continued to post lacklustre sales. In terms of positive surprises in our coverage
universe, Brigade Enterprises (BRGD) reported strong set of numbers driven by
commercial strata sales while Phoenix Mills (PHNX) saw steady operational
performance on the back of High Street Phoenix rental re-renegotiations being on track
and Pune Market City becoming operational during the quarter.
All eyes on cash flows/debt levels in FY12
Our channel checks indicate that loan sanctions for developers continue to be delayed
with interest rates continuing their upward march. Further, developers are finding it
tough to generate enough cash flows to take care of interest payments, making it
difficult for companies to deleverage in the medium term. With a combined net debt of
INR 385 bn for 11 companies as of Q1FY12 (ex-Oberoi Realty/Jaypee Infratech), which
represents a 15% Y-o-Y rise in net debt, the ability of companies to prevent debt levels
from burgeoning further will be the key monitorable in FY12.
Outlook: Cautious; stick with low gearing/rental yield names
Focus over the medium term is likely to be on company-specific issues such as
corporate governance, execution capability, and funding position. Fund availability is
expected to be a concern on the back of a number of loans coming up for repayment in
FY12 and interest rates likely to remain at an elevated level. As a result, we expect a
combination of these factors to contribute to the sector’s underperformance in the
near term and we maintain our ‘Underweight’ stance on the sector. We prefer
companies with exposure to high visibility rental assets, execution track record and
transparency in operations.
Top Picks: Oberoi Realty, Phoenix Mills.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Q1FY12 was a weak quarter for the realty sector with Y‐o‐Y revenue
growth of 8.7% being offset by 19.5% Y‐o‐Y decline in profit, clearly
reflecting dual pressures of rising input and interest costs. We continue to
maintain our ‘Underweight’ stance on the estate sector in light of high
interest rates, margin pressures and burgeoning debt levels seeing no
signs of abating over the next two quarters. We prefer companies with
exposure to high visibility rental assets, low gearing levels and
transparency in operations. Oberoi Realty and Phoenix Mills are our top
picks.
Volumes steady; rising input costs/interest rates hurt profitability
Although the sector posted steady operational performance Y-o-Y with revenue surging
8.7%, Y-o-Y EBITDA decline of 7.5% and profit dip of 19.5% across an universe of 14
companies clearly reflects the double whammy of rising input costs and higher interest
rates. While sales volume at the pan-India level was steady, Mumbai property market
continued to post lacklustre sales. In terms of positive surprises in our coverage
universe, Brigade Enterprises (BRGD) reported strong set of numbers driven by
commercial strata sales while Phoenix Mills (PHNX) saw steady operational
performance on the back of High Street Phoenix rental re-renegotiations being on track
and Pune Market City becoming operational during the quarter.
All eyes on cash flows/debt levels in FY12
Our channel checks indicate that loan sanctions for developers continue to be delayed
with interest rates continuing their upward march. Further, developers are finding it
tough to generate enough cash flows to take care of interest payments, making it
difficult for companies to deleverage in the medium term. With a combined net debt of
INR 385 bn for 11 companies as of Q1FY12 (ex-Oberoi Realty/Jaypee Infratech), which
represents a 15% Y-o-Y rise in net debt, the ability of companies to prevent debt levels
from burgeoning further will be the key monitorable in FY12.
Outlook: Cautious; stick with low gearing/rental yield names
Focus over the medium term is likely to be on company-specific issues such as
corporate governance, execution capability, and funding position. Fund availability is
expected to be a concern on the back of a number of loans coming up for repayment in
FY12 and interest rates likely to remain at an elevated level. As a result, we expect a
combination of these factors to contribute to the sector’s underperformance in the
near term and we maintain our ‘Underweight’ stance on the sector. We prefer
companies with exposure to high visibility rental assets, execution track record and
transparency in operations.
Top Picks: Oberoi Realty, Phoenix Mills.
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