Earnings Preview Realty Cos may Report Flat Growth This Time

Both residential & commercial markets witnessed low absorption in    The realty market was more or less subdued during the quarter ended June 2012. Sales volume and absorption rates were low in the residential segment, while high inventory and slow execution of projects continue to be a cause of concern.  Most real estate companies are expected to report flat-to-moderate growth in sales volumes for the June quarter. The industry may see only a moderate reduction in debt, with most companies, including DLF and HDIL, still showing stretched cash flows. The commercial real estate market was characterised by low absorption and a slight drop in rentals in the metros.  While residential realty prices have remained firm and even risen in some areas of the Mumbai Metropolitan Region, absorption has remained low. As a result, Mumbai-based companies like HDIL and Oberoi Realty are likely to post subdued growth, more so on a sequential basis. The market in Bangalore has been fairly strong and stable, compared with Mumbai and Delhi. This will be reflected in the performance of south-based companies such as Sobha Developers, Prestige Estates and Puravankara Projects. Labour and raw material costs like that of steel and cement accounts for 70% of the construction costs of real estate companies. Expenses on these heads have moderated and were more or less stable in the June quarter.  Moreover, the sharp slide in the rupee is likely to prompt NRI investment in the property market. Regions such as Bangalore, the National Capital Regionand Pune would benefit on this count. The BSE Realty Index has underperformed the Sensex since the end of February 2012. In the absence of any positive trigger, this is likely to continue in the near term. With no sign of a price correction in the offing, volume growth is likely to remain poor.  A softening of interest rates could help revive demand, while refinancing of developers' loans would enable companies to complete projects and repay debt. However, with RBI maintaining a cautious stance on rates, debt-ridden realty firms will have to wait a while for any reprieve. Analysts expect Mahindra Lifespace, Sobha Developers and Prestige Estates to post moderate-to-strong growth in revenues for the quarter.  kiran.somvanshi@timesgroup.com