Karvy Stock Broking expects 5-54% YoY decline in Q4FY14E earnings for Puravankara, Kolte Patil, Prestige, Oberoi Realty, whilst DLF performance may improve YoY owing to contribution from Aman Resort sale.
It further said, our channel checks suggest some improvement in Southern markets & Pune, post a weak festive Q3FY14, whilst NCR and Mumbai volumes continue to languish. The key reasons for the pre-sale improvement include price correction/discount offered by developers (5-10%), new launches and improved sentiment on expectation of stable Government. Whilst the volume growth recovery may witness sequential pick up, the sustainability still remains a concern. Much has been bet on stable Government post Central elections, with expectation of accelerated volumes recovery and hardening of rental yields, the uncertainity remains a key overhang.
Only solace lies in calibrated price corrections. Demand micro analysis suggests clear tilt towards affordable category in the Rs 7 million/flat category whilst there is sharp slowdown in bulge bracket of Rs 10 million/flat. Near term drivers for the sector include dividend policy announcements (Prestige Estates, Oberoi Realty), capex stabilization (Phoenix, Prestige, Oberoi Realty) & balance sheet deleveraging (DLF, Puravankara).
"We forecast 18.8% YoY revenue de-growth for our coverage universe whilst EBIDTA margin contraction should result in 20.3% YoY EBIDTA de-growth (largely attributable to cost overrun resets). Flattish interest outgo & higher other income to result in YoY net profit growth of 0.3% (excluding DLF, we estimate 36.1% YoY PAT de-growth for our coverage universe). On positive side, we may see marginal deleveraging in DLF, Prestige & Puravankara," Karvy added.
Karvy expects strong pre-sales traction in completed and nearing completion inventory of Prestige Estate & Sobha. On EBIDTA margins front, it expects contraction in margins for Oberoi (slow traction in sales) & Puravankara (higher share from affordable housing company Provident) whilst EBIDTA expansion may augur well for Prestige Estates & Sobha.
Over past 1M, BSE Realty Index has outperformed Sensex by 15.3% owing to central banks pause on rate hikes, mortgage rate discounts offers by SBI, HDFC etc, real estate project discounts and expected economic recovery.
Karvy downgrades Prestige Estates to Hold from Buy (strong price performance). Despite sharp outperformance, BSE Realty Index continues to trade close to recession multiples and presents a good entry point, DLF, Oberoi Realty, Puravankara & Kolte Patil remain our preferred picks for further meaningful upside from current levels, it added.
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