Property sector update for Q1FY13 - Geojit BNP Paribas Financial Services

- Outlook for 1QFY13 is expected to be muted. Sobha and Prestige Estate Projects are likely to outperform other developers.

- Quarterly numbers for 1QFY13 would start flowing by second half of July and Oberoi Realty would be the first developer to announce quarterly numbers.

It appears that key parameters to be watched in the quarterly numbers would be operational data such as contracted sales volume and execution updates, leverage and cash flows of the company.

- Sobha and Prestige are expected to outperform on the majority of the parameters.

- Operational data of Oberoi is likely to be muted as there were no new launches in 1Q.

- For DLF any decline in net debt is not expected. Company's operational data is also likely to be muted.

Company wise expectations:

- DLF -No major reduction in debt is expected in 1Q in the absence of asset sales and muted earnings. Unitech - expect lacklustre execution and muted performance on sales

- Sobha - stable volumes/operating cash flows will be offset by acquisition of JV partner's stake in Sobha city, Thrissur project.

- Oberoi- muted sales performance/positive cash flows/no major announcement on land acquisition

- Prestige - strong contracted sales momentum to continue / Earnings to remain muted (Significant uptick from 2HFY13.

- IBREL - muted sales/disclosures continue to remain a concern.

- HDIL - no major improvement in contracted sales or cash flows.

- Physical property markets in key cities except Mumbai are expected to remain stable. Pune, Bangalore and Chennai continue to be the most efficient markets with inventory months of 14-20. In Mumbai, checks indicate that muted performance is likely to continue with quarterly volume at 8-9million sq ft.

- From FY13, all real estate developers are likely to adopt the new accounting policy suggested by ICAI. One of the key highlights of the policy is that a developer can recognise revenue only after 25% of the construction cost is incurred.

- The new policy is applicable only for projects launched after 1 April, 2012 or for projects for which no revenue had been recognised until FY12.

- Slowdown in earnings momentum would be apparent in 2HFY13 since most companies would still have significant unrecognised revenue from projects launched in FY12, which will get recognised in 1HFY13.

- Change in accounting policy could witness a slowdown in earnings momentum of Anant Raj, DLF and Sobha Developers.

- Prestige and HDIL are expected to gain from the new policy as they are the most conservative and recognise sales only after 30% of construction cost has been incurred or after the project is completed.

Source : Equity Bulls

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