By Nawaz Sayyed
Due to constant rise in interest rate and costs reducing sales has been badly affected to the profitability of real estate developers.
Certainly there are several listed companies believes that there is nothing wrong with the sales but analyst has the different story, they said that “numbers are in fact dwindling and that their net profit margins are getting squeezed with every passing quarter.”
Listed realtors such as DLF, Unitech, Indiabulls Real Estate (Ibrel), Orbit Corp, Parsvnath Developers, Peninsula Land, Phoenix Mills and Sobha Developers have together seen their interest outgo jump 60% year on year in the quarter ended December.
Even in the previous quarter, the total interest outgo had shot up 43% year on year.
According to Param Desai an analyst with Angel Broking said that “All the developers are getting their refinancing done at a higher interest cost and cash flow is declining. Whereas the net debt is in a blissful position, the contemporary concern in the sector is regarding the higher interest outgo and margins squeezing thereby,”
According to street estimates lending rate is 13-15% interest rate per annum.
Among others, DLF, Unitech and Orbit Corp have seen their net profit margins shrink as interest costs shot up.
Mumbai-based DB Realty and HDIL have so far been able to maintain their margins — HDIL aided by TDR sales and DB Realty because of an increase in other income and lower expenditure on projects besides TDR sales.
Players with lower borrowing costs and repayments saw their net profit margins go up in the December quarter. These included Ibrel, Parsvnath Developers, Phoenix Mills and Sobha Developers.
DLF, the largest realtor in the country by market capitalization, has, however, seen its interest outgo increase significantly in the last two quarters, leading to shrinkage in net profit margins.
The company’s interest outgo increased 66.5% in the December quarter even as net profit margin fell from 23.1% to 18.8% in the third quarter of current fiscal.
DLF had repayments worth Rs1,668 crore lined up by the end of the current quarter, after refinancing which, it has a mandatory repayment obligation of Rs210 crore during this period.
Going by the management, DLF’s debt cost has increased from 10.5% to 10.8%.The company has repaid Rs2,680 crore so far this fiscal.
Another player which has seen an enormous jump in its interest outgo, at 130.6%, in the December quarter is Unitech, the second-largest developer by market capitalization.
The company’s net profit margin fell to 16.9% from 22.7% in the December quarter.
“The concern is quite strong and at present investors are not too keen to look at this sector at all. Some have entered Unitech at `33 per share, but otherwise, realty stocks are being beaten due to these concerns. Also, project launches have also been fewer in the last two quarters, so there is no scope of a pick-up unless prices fall and deliveries can be seen in the market for old launches,” an analyst from an international brokerage said, requesting anonymity.