Go­drej leads pack of out­liers in real es­tate

Business Standard - - FRONT PAGE - ABHINEET KU­MAR & RAM PRASAD SAHU write

Af­ter a triple blow from note ban, the GST, and the im­ple­men­ta­tion of the Real Es­tate Act, res­i­den­tial real es­tate sales have been de­clin­ing. How­ever, a bunch of out­liers, led by Go­drej Prop­er­ties, are buck­ing the trend.

Sobha Devel­op­ers, Oberoi Realty also buck­ing slow­down trend

Af­ter a triple blow from note ban, the new tax regime and the im­ple­men­ta­tion of the Real Es­tate (Reg­u­la­tion and De­vel­op­ment) Act (RERA), res­i­den­tial realty sales wit­nessed a steep de­cline.

How­ever, a bunch of out­liers are buck­ing the slow­down in the realty sec­tor and record­ing healthy sales and earn­ings growth. Lead­ing the bunch is Mum­bai-based Go­drej Prop­er­ties, fol­lowed by Ben­galuru-head­quar­tered Sobha Devel­op­ers and Mum­bai-based Oberoi Realty.

Res­i­den­tial launches in top eight cities dipped by 41 per cent in first six months of 2017, low­est in seven years, ac­cord­ing to Knight Frank.

RERA has fun­da­men­tally changed the na­ture of de­vel­op­ment by push­ing project IRRs (in­ter­nal rate of re­turns) down and mak­ing devel­op­ers de­lay projects. This comes when un­sold in­ven­tory in the na­tional cap­i­tal re­gion stands at ap­prox­i­mately 200,000, which will take 62 months to get ab­sorbed. In Mum­bai Metropoli­tan Re­gion, un­sold in­ven­tory is at ap­prox­i­mately 180,000 and will take 52 months to get ab­sorbed, ac­cord­ing to bro­ker Anarock.

“Devel­op­ers with strong bal­ance sheets and strong brands will ben­e­fit,” said Ri­tika Mankar Mukher­jee, an­a­lyst with Am­bit Cap­i­tal, in her re­port this month. “Go­drej Prop­er­ties and Sobha are well placed to gain share in the stressed sec­tor, which is con­sol­i­dat­ing pan-In­dia. Around a dozen play­ers, who man­age cap­i­tal sensibly, can ex­e­cute projects at speed and have the know-how to man­age the ecosys­tem.”

In the Septem­ber quar­ter, the Piro­jsha Go­drej-led com­pany recorded ~492 crore net sales, up 49 per cent year-onyear, and ~88 crore net profit, up 88 per cent year-on-year.

“A com­bi­na­tion of strong project ad­di­tions, strong pre­sales and con­tin­ued good ex­e­cu­tion makes us be­lieve a ma­jor scale-up in busi­ness is well un­der­way,” said Ab­hi­nav Sinha, an­a­lyst with for­eign bro­ker­age CLSA. “We lift our FY19-20 earn­ings 510 per cent build­ing in higher pre-sales. De­spite strong gains in the past three months, we be­lieve Go­drej Prop­er­ties can still do well as its pre-sales ac­cel­er­ate,” Sinha said in his post re­sult note, in­di­cat­ing mar­ket share gain by Go­drej Prop­er­ties.

Also Sobha and Oberoi Realty re­ported about 20 per cent growth in sales, be­sides year-on-year net profit growth of 31 per cent and 25 per cent, re­spec­tively, in the quar­ter. Earn­ings growth of these com­pa­nies stand out when the coun­try’s largest player DLF has recorded 94 per cent an­nual de­cline in its net profit to ~12.6 crore, be­sides 23.3 per cent year-on-year drop in sales to ~1,588 crore.

“While de­mand re­mains sub­dued, we be­lieve Sobha is well placed to ben­e­fit from struc­tural re­forms in the sec­tor, with the in­tro­duc­tion of a reg­u­la­tor, pro­vid­ing a lev­elplay­ing field for or­gan­ised devel­op­ers,” said Ab­hishek Anand, an­a­lyst with do­mes­tic bro­ker­age J M Fi­nan­cial. “In ad­di­tion, a foray into af­ford­able hous­ing could im­prove pre-sales ma­te­ri­ally. How­ever, ex­e­cu­tion of land par­cel re­mains crit­i­cal for sig­nif­i­cant up­side po­ten­tial from cur­rent lev­els.”

Oberoi Realty re­cently bid for a 60-acre land par­cel at Thane, which was owned by Glax­oSmithK­line Phar­ma­ceu­ti­cals. The land par­cel has a po­ten­tial saleable area of about 8 mil­lion sq ft, which Oberoi Realty would look to mon­e­tise over the next eight to 10 years.

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