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Weak sales momentum
Continued low absorption rates has driven up under-construction unsold
inventory to 39 months in Mumbai – implying that price cuts are
imminent and some initial signs already visible. Gurgaon’s residential
sales declined only 1% QoQ during 3QCY11. We cut DLF’s FY12 and FY13
earnings by 9-19% reflecting poor new project launches as the company
focuses more on asset sales. Unitech’s earnings are cut by 14-21% on
lower volumes. Potential price cuts during the upcoming festive season
driving volume and cashflow improvement could be a trigger.
Gurgaon sales flattening as Mumbai remains low; Noida stalled
q Gurgaon residential sales declined 1% QoQ and 8% YoY in 3QCY11 as per data
from Jones Lang LaSalle. Sales decline was partly on account of lower launches.
q Mumbai sales rose 16% QoQ on small base as launches rose 20% QoQ. Sales were
however flat YoY and are down 35% YoY for 9MCY11.
q Noida sales stalled post the land agitation that started in late 2Q. Launches fell
92% YoY/87% QoQ, dragging sales down by 68% YoY/58% QoQ.
q Quarterly absorption rate (= units sold / (unsold units at the beginning + new
launches during the quarter)) remained healthy in Gurgaon 20% but fell sharply in
Noida to 8% from 16%. Absorption rates remained a low 6% in Mumbai.
q Inventories in Gurgaon were flat sequentially at 10.6 months. Mumbai inventories
rose further to 39.1 months, implying that it will take 3+ years to clear inventory at
current sales rate – making price cuts imminent.
Price gains continue in NCR; Mumbai reporting select cuts now
q Prices in NCR rose 1-3% QoQ on average, same as 2Q, and have now risen 7-12%
YoY – with Noida at the lower and Gurgaon at the upper end of price increases.
q Mumbai prices were flat (+0-1% QoQ); and have been flat for 4 quarters.
q While explicit/broad-based price cuts are tough to come by, Mumbai has seen
particular areas of over-supply (e.g. Lower Parel) see price cuts/”special offers”.
Build in weaker pricing; lower volumes for FY12-13
q With the impact of mortgage rate hikes now being felt and corrections in the same
looking unlikely till mid-2012, we build in flat volumes/flat pricing for FY13 vs FY12.
q We cut DLF’s FY12-14 volumes by 12-20% partly as management’s attention has
now diverted to asset sales, leading to a slow pace of new launch activity.
q We also cut Unitech’s FY12-14 volumes by 12-19% as project execution has
become lacklustre and weaker macro has impacted sales volumes.
q For JP Infra, we already build in 50% volume decline in FY12.
Prefer DLF, Oberoi, Sobha
q Lower pricing and volumes lead to NAV/target cut of 7-8% in DLF and Unitech. It
also drives an earnings cut of 9-21% in DLF and 14-21% in Unitech over FY12-14.
Profit from asset sales though may be an upside to earnings for DLF.
q DLF is our preferred large cap as its P&L/BS get support from asset sales, despite
lower sales rate. Gurgaon and commercial property strength support valuations.
q Sobha has demonstrated benefits of geographic expansion by posting a 41%
QoQ/26% YoY sales growth in 2Q. Company is on track to meet its guidance.
q Oberoi is our preferred pick on a potential recovery in Mumbai property.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Weak sales momentum
Continued low absorption rates has driven up under-construction unsold
inventory to 39 months in Mumbai – implying that price cuts are
imminent and some initial signs already visible. Gurgaon’s residential
sales declined only 1% QoQ during 3QCY11. We cut DLF’s FY12 and FY13
earnings by 9-19% reflecting poor new project launches as the company
focuses more on asset sales. Unitech’s earnings are cut by 14-21% on
lower volumes. Potential price cuts during the upcoming festive season
driving volume and cashflow improvement could be a trigger.
Gurgaon sales flattening as Mumbai remains low; Noida stalled
q Gurgaon residential sales declined 1% QoQ and 8% YoY in 3QCY11 as per data
from Jones Lang LaSalle. Sales decline was partly on account of lower launches.
q Mumbai sales rose 16% QoQ on small base as launches rose 20% QoQ. Sales were
however flat YoY and are down 35% YoY for 9MCY11.
q Noida sales stalled post the land agitation that started in late 2Q. Launches fell
92% YoY/87% QoQ, dragging sales down by 68% YoY/58% QoQ.
q Quarterly absorption rate (= units sold / (unsold units at the beginning + new
launches during the quarter)) remained healthy in Gurgaon 20% but fell sharply in
Noida to 8% from 16%. Absorption rates remained a low 6% in Mumbai.
q Inventories in Gurgaon were flat sequentially at 10.6 months. Mumbai inventories
rose further to 39.1 months, implying that it will take 3+ years to clear inventory at
current sales rate – making price cuts imminent.
Price gains continue in NCR; Mumbai reporting select cuts now
q Prices in NCR rose 1-3% QoQ on average, same as 2Q, and have now risen 7-12%
YoY – with Noida at the lower and Gurgaon at the upper end of price increases.
q Mumbai prices were flat (+0-1% QoQ); and have been flat for 4 quarters.
q While explicit/broad-based price cuts are tough to come by, Mumbai has seen
particular areas of over-supply (e.g. Lower Parel) see price cuts/”special offers”.
Build in weaker pricing; lower volumes for FY12-13
q With the impact of mortgage rate hikes now being felt and corrections in the same
looking unlikely till mid-2012, we build in flat volumes/flat pricing for FY13 vs FY12.
q We cut DLF’s FY12-14 volumes by 12-20% partly as management’s attention has
now diverted to asset sales, leading to a slow pace of new launch activity.
q We also cut Unitech’s FY12-14 volumes by 12-19% as project execution has
become lacklustre and weaker macro has impacted sales volumes.
q For JP Infra, we already build in 50% volume decline in FY12.
Prefer DLF, Oberoi, Sobha
q Lower pricing and volumes lead to NAV/target cut of 7-8% in DLF and Unitech. It
also drives an earnings cut of 9-21% in DLF and 14-21% in Unitech over FY12-14.
Profit from asset sales though may be an upside to earnings for DLF.
q DLF is our preferred large cap as its P&L/BS get support from asset sales, despite
lower sales rate. Gurgaon and commercial property strength support valuations.
q Sobha has demonstrated benefits of geographic expansion by posting a 41%
QoQ/26% YoY sales growth in 2Q. Company is on track to meet its guidance.
q Oberoi is our preferred pick on a potential recovery in Mumbai property.
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