We think that a 5 year execution down-cycle for Indian Property developers is
coming to an end. Legacy inventory issues (cost escalations etc) and new
accounting norms have impacted earnings estimates for almost all companies.
However, with approvals easing at the margin and old projects starting to
move out of the book, cash burners of the past should start becoming cash
churners. We note that project execution across companies is far improved.
Our top picks in the sector are Prestige / IBREL given strong core operating
trends. DLF remains OW as we believe cash turnaround for the company is
close.
1H pre sales – DLF, Prestige & IBREL standout: Q2 generally is a weak
quarter for pre sales. Hence, judging by 1H performance Prestige/ Sobha/
IBREL and DLF were standout performers with pre-sale growth of 15-
150%. Mumbai developers Oberoi/Godrej/HDIL struggled, partly
attributable to delay in new launches.
Debt levels for the sector are stable to downward trending with net debt
levels coming down notably for DLF and Godrej. For most other companies
debt levels were largely stable, and increased in the case of Unitech, HDIL
(on higher construction spend) and IBREL (on PE buyout).
Market review-Bangalore still the best: In residential markets, Bangalore
continues to witness steady absorption trends on the back of high launch
activity, positive IT hiring trends & higher NRI demand. Mumbai has not
seen a meaningful pick up in launch activity as yet and hence recent festive
season remained muted. NCR seems to be slowing down, however DLF
bucked the trend garnering a strong response to its luxury projects in Phase 5
(Gurgaon). In the commercial market, retail segment is doing well and rents
have seen appreciation over the last year. Office leasing has been slow
though there has been some tick up at the margin with Gurgaon/ Bangalore
witnessing increased activity.
Earnings outlook- We think earnings for the sector will continue to remain
muted for the next 3 quarters because of the dual impact of transition to new
accounting norms and cost inflation on completing inventory. Consequently
we think that it's best to judge RE companies by their overall pre sales
/collections and FCF performance. Prestige in our view scores the best on
almost all of these metrics
��
coming to an end. Legacy inventory issues (cost escalations etc) and new
accounting norms have impacted earnings estimates for almost all companies.
However, with approvals easing at the margin and old projects starting to
move out of the book, cash burners of the past should start becoming cash
churners. We note that project execution across companies is far improved.
Our top picks in the sector are Prestige / IBREL given strong core operating
trends. DLF remains OW as we believe cash turnaround for the company is
close.
1H pre sales – DLF, Prestige & IBREL standout: Q2 generally is a weak
quarter for pre sales. Hence, judging by 1H performance Prestige/ Sobha/
IBREL and DLF were standout performers with pre-sale growth of 15-
150%. Mumbai developers Oberoi/Godrej/HDIL struggled, partly
attributable to delay in new launches.
Debt levels for the sector are stable to downward trending with net debt
levels coming down notably for DLF and Godrej. For most other companies
debt levels were largely stable, and increased in the case of Unitech, HDIL
(on higher construction spend) and IBREL (on PE buyout).
Market review-Bangalore still the best: In residential markets, Bangalore
continues to witness steady absorption trends on the back of high launch
activity, positive IT hiring trends & higher NRI demand. Mumbai has not
seen a meaningful pick up in launch activity as yet and hence recent festive
season remained muted. NCR seems to be slowing down, however DLF
bucked the trend garnering a strong response to its luxury projects in Phase 5
(Gurgaon). In the commercial market, retail segment is doing well and rents
have seen appreciation over the last year. Office leasing has been slow
though there has been some tick up at the margin with Gurgaon/ Bangalore
witnessing increased activity.
Earnings outlook- We think earnings for the sector will continue to remain
muted for the next 3 quarters because of the dual impact of transition to new
accounting norms and cost inflation on completing inventory. Consequently
we think that it's best to judge RE companies by their overall pre sales
/collections and FCF performance. Prestige in our view scores the best on
almost all of these metrics
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