Southern real estate market shows signs of weakness

ET Intelligence Group: The southern real estate market, which has been comparatively more resilient in the past few years, is now also showing some signs of weakness, according to numbers reported by leading realty companies such as Sobha Developers BSE -1.68 %, Prestige Estate, Puravankara Projects BSE -0.71 % and Brigade Enterprises.

In the September quarter, total revenues booked by these realtors fell 10 per cent from the preceding quarter as well from the year-ago period. The operating margins (or profitability) of these companies — excluding Brigade — have also come under pressure. The combined operating margin (or EBIDTA) for the September quarter is down at 18.8 per cent against 22 per cent in the corresponding period last fiscal — a sign that these builders, unable to command higher prices for their projects, are taking up more affordable housing projects with lesser margins. Except Brigade, the price realisation is lower for the other companies. (Brigade enjoyed good margins and realisations in the September quarter, as it booked sales for the high-end projects it had launched earlier).

The total debt of these companies also rose between March and September this year by 17 per cent. But even though interest component as a percentage of sales rose, creating pressure on profitability, it is still within comfort limits. (See chart.) The aggregate inventory of these 4 players peaked out in the June FY16 quarter and declined in the September quarter with fewer new launches.
Brigade, thanks to its better performance, is the only stock that has given positive returns in the past six months. Going forward, these companies are likely to show under performance unless there is a surge in demand.

Courtsey: The Economic Times