Real Estate

2QFY17E Results Preview

7 Oct 2016

Parikshit D Kandpal
parikshitd.kandpal@hdfcsec.com
+91-22-6171-7317

2QFY17E RESULTS PREVIEW

Real Estate (2QFY17E): A weak quarter

60

80

50
40

60

30
40

20

1QFY17

4QFY16

3QFY16

2QFY16

1QFY16

4QFY15

3QFY15

2QFY15

0
1QFY15

4QFY14

10
3QFY14

20

Rentals Strong absorption, Vacancy reducing

6.0

16.5

4.0

16.0

2.0

15.5

15.0
1QFY17

17.0

4QFY16

17.5

8.0

3QFY16

10.0

2QFY16

18.0

1QFY16

12.0

4QFY15

14.0

Vacancy (%) - RHS

18.5

3QFY15

Supply (mn sqft)

2QFY15

Absorption (mn sqft)

1QFY15

Inventory (months) - RHS

100

4QFY14

Volumes (mn sqft)

3QFY14

Residential Sales stabilizing, Inventory increasing on launches

2QFY14

Residential real estate market continues to find stable ground

with improvement in volumes sold during 1QFY17 YoY. New
launches have picked pace as reflected in months of inventory
trending up to 50months (3 qtrs high). Property prices have
remain muted (YoY) with 0-10% correction in NCR, Pune &
MMR whilst increasing 0-10% in Bengaluru, Chennai &
Hyderabad. We expect 2HFY17E pre-sales pick up in Bengaluru,
Pune, Mumbai and NCR on account of upcoming festive season
and likely mortgage rates correction.
Commercial real estate remains robust with improvement in
absorption during 1QFY17 on QoQ basis and reduction in new
supply. Overall vacancy rate came down to 16.1% (2-yr low).
NCR, Bengaluru, Pune and Hyderabad saw good 1QFY17 leases.
Amongst our coverage universe we expect muted to weak
results except for Prestige Estate/Brigade. On QoQ basis
Prestige Estates/Brigade may gain margin traction as cost
overruns provisioning may reduce. DLF, & Oberoi will deliver
muted/weak QoQ results. DLF may report loss as Phase V sales
have been weak and lower EBIDTA on legacy projects may not
be sufficient to cover quarterly interest expense.
We expect pickup in earnings momentum once the nearing
completion/unsold inventory sales improve. During 2QFY17E,
aggregate sales growth (ex DLF) will be 2.1% YoY. However,
EBIDTA margins contraction of ~153.5bps YoY will result in
3.4/17.2% EBIDTA/PAT de-growth.
Top picks: We maintain our preference for Prestige Estates (well
diversified residential/office rental recovery play, REITs play),
Oberoi (gaining market share, strong sales capability) & Sobha
(key beneficiary of residential recovery and strong brand ).

2QFY14

Source: HDFC sec Inst Research, Commercial - Cushman Wakefield, Residential

- Liases Foras. Commercial/Residential data takes into account Top 6 Indian
2
Cities of MMR, NCR, Bengaluru, Chennai, Pune and Hyderabad

2QFY17E RESULTS PREVIEW

2QFY17E: Waiting for earnings recovery

COMPANY

DLF

Oberoi Realty

Prestige Estates

Sobha

2QFY17E
OUTLOOK

WHATS LIKELY

KEY MONITORABLES

BAD

Revenue to de-grow 4.9% QoQ as phase V project sales

Progress on Rent Co stake sale
contribution may remain muted
Debt levels
EBIDTA Margins may expand 6.4bps QoQ to 39.9%. In absence
Pre-sales momentum in residential
of any big ticket non core asset monetization DLF may report loss
segment
on account of higher interest costs and lower other income

BAD

We expect 28.2% QoQ revenue de-growth on account of lesser

contribution from Esquire and Exquisite.
EBIDTA margins to expand by 236.1bps QoQ to 54.4%, as
Exquisite revenue contribution will be from higher floors and
Esquire revenue under recognition will see realization
improvement
Net profit to de-grow 28.1% QoQ

Sales traction in ready project Exquisite

Worli pre-sales pickup
Leasing trend in Commerz-II. Our channel
check suggest ORL may surprise
positively on Commerz-II leasing

GOOD

We expect 10.1% QoQ growth in revenue

EBIDTA margins to expand by 356bps QoQ to 21.6% owing to
limited cost overruns in nearing completion projects vs 1QFY17
Net profit to grow 17.4% QoQ to Rs 552mn

Pre-sales momentum
Debt levels
Capex plans on annuity assets/REITs
monetization

AVG

We estimate 18.4% QoQ de-growth in revenue as 1QFY17 had

impact of Rs 1bn of pune land sale
EBIDTA margins may expand 575.5bps QoQ as 1QFY17 reflected
low margins on Pune land sales (~12%)
Net profit to grow 8.8% QoQ in line with EBIDTA growth of 8.4%

Pre-sales momentum on premium

projects
Debt levels
Outlook on Capex on Commercial
segment

2QFY17E RESULTS PREVIEW

2QFY17E: Waiting for earnings recovery

COMPANY

Brigade

Kolte Patil

2QFY17E
OUTLOOK

GOOD

AVG

WHATS LIKELY

KEY MONITORABLES

We expect revenue growth of 1.1% QoQ

EBIDTA margins may expand 198.2bps to 27.6% QoQ. During
1QFY17, JDA revenue (Rs 680mn) contributed ~7% margins
Net Profit to grow 39.4% QoQ on account of better EBIDTA
margins and stable debt levels/interest expense

Outlook on asset capex

Debt levels

Revenue to grow 5.1% QoQ

Debt levels

Margins contraction by 205.9bps QoQ on account of higher

contribution from mid-income housing projects

Sales traction in Life Republic R1 sector,

Corolla Realty & Wakad project

Net profit to de-grow 2.1% QoQ inline with EBIDTA de-growth of Launch pipeline & pre-sales volume
1.5% QoQ

2QFY17E RESULTS PREVIEW

2QFY17E: Financial summary

COMPANY

NET SALES (Rs bn)

2Q
QoQ
YoY
FY17E
(%)
(%)

EBITDA (Rs bn)

2Q
QoQ
FY17E
(%)

YoY
(%)

EBITDA Margin (%)

2Q
QoQ
YoY
FY17E
(bps)
(bps)

(120.7)

(140.9)

(0.3)

1.5

0.7

(318.8)

0.8

(28.1)

8.0

2.3

3.2

2.1

356.4

(88.4)

0.6

17.4

(45.2)

1.5

1.3

2.7

23.2

575.5

(260.3)

0.4

8.8

(2.3)

4.0

3.7

4.1

(1.3)

27.6

198.2 (1,056.5)

0.3

39.4

(27.2)

2.5

1.8

3.4

(1.5)

42.7

30.8

(205.9)

448.8

0.2

(2.1)

41.7

2.5

2.5

1.7

5.0

(3.4)

27.0

217.8

(153.5)

2.2

(5.1)

(17.2)

(4.9)

(4.8)

7.1

(4.7)

(24.4)

39.9

2.3

(28.2)

21.5

1.3

(24.9)

14.8

54.4

236.1

10.4

10.1

(13.6)

2.3

31.9

(17.0)

21.6

Sobha Limited

4.7

(18.4)

2.9

1.1

8.4

(7.4)

Brigade Enterprises

4.6

1.1

36.5

1.3

9.0

Kolte-Patil Developers

1.9

5.1

21.9

0.6

23.9

(3.4)

2.1

6.4

Oberoi Realty
Prestige Estates

Aggregate*

YoY
(%)

Adj. EPS (Rs/sh)

2Q
1Q
2Q
FY17E
FY17
FY16

(0.5)

17.8

DLF

APAT (Rs bn)

2Q
QoQ
FY17E
(%)

6.4 (1,038.9)

Source: Company, HDFC sec Inst Research * aggregate exclude DLF numbers as it will then reflect DLF performance largely

2QFY17E RESULTS PREVIEW

2QFY17E: Valuation summary

Adj. EPS (Rs/sh)

P/E (x)

EV/EBITDA (x)

ROE (%)

COMPANY

MCap
(Rs bn)

CMP
(Rs)

RECO

TP
(Rs)

FY16

FY17E

FY18E

FY16

FY17E

FY18E

FY16

FY17E

FY18E

FY16

FY17E

FY18E

DLF

276.4

155

BUY

191

4.0

0.7

2.9

38.8

218.1

54.3

13.1

16.1

13.4

1.7

1.6

1.8

Oberoi Realty

110.0

324

BUY

381

12.6

16.6

33.5

25.8

19.6

9.7

17.0

11.7

6.0

8.5

10.0

17.7

Prestige Estates

77.6

207

BUY

264

9.4

8.9

10.6

22.1

23.2

19.6

12.4

12.4

10.8

10.8

9.5

10.6

Sobha Limited

30.2

308

BUY

400

17.0

17.9

23.9

18.1

17.2

12.9

10.0

10.0

8.5

6.3

6.8

8.5

Brigade Enterprises

19.7

175

BUY

208

11.5

12.5

16.1

15.2

14.0

10.9

7.7

6.6

5.3

11.7

11.8

15.9

Kolte-Patil Developers

9.5

126

BUY

171

7.8

9.7

13.5

16.2

13.0

9.3

8.0

6.3

4.9

6.9

8.1

10.4

Source: Company, HDFC sec Inst Research

2QFY17E RESULTS PREVIEW

Rating Definitions
BUY
: Where the stock is expected to deliver more than 10% returns over the next 12 month period
NEUTRAL
: Where the stock is expected to deliver (-) 10% to 10% returns over the next 12 month period
SELL
: Where the stock is expected to deliver less than (-) 10% returns over the next 12 month period
Disclosure:
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subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its
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Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest.
Any holding in stock No
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2QFY17E RESULTS PREVIEW

HDFC securities
Institutional Equities
Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park, Senapati Bapat Marg, Lower Parel,
Mumbai - 400 013
Board : +91-22-6171 7330
www.hdfcsec.com
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