Why Real Estate Firms Maintain Pre-Sales Guidance Despite Muted Q1 Launches
The momentum is expected to improve in the second half of the financial year, according to analysts and company managements.
Major listed real estate players maintained their pre-sales guidance for the current financial year, even as launches remained muted for the quarter ended June.
“On an average, companies are reporting between 15-25% on-year pre-sales growth, despite muted project launches during the quarter. The guidance and cash flow generation have also remained good,” said Parvez Qazi, executive director, Nuvama Institutional Equities.
The momentum is expected to improve in the second half of the financial year, on the back of actual pre-sales numbers and strong guidance, according to the companies' management commentaries and analysts’ expectations.
"Launches were muted on certain issues in terms of getting all the approvals in time ... But developers who managed to launch one or two projects, they continue to witness fairly good traction," said Karan Khanna, analyst at Ambit Capital Pvt.
“Reported profit and loss, revenue numbers in real estate companies are based on projects which were launched maybe four or five years back. Therefore, there is no relevance to whatever has happened in current year," said Qazi.
One should look at analysing the performance of the real estate companies, based on their pre-sales growth and cash flow—which has been healthy across the board for almost all firms, he said.
Debt Levels
Major real estate developers Delhi Land and Finance Ltd. and Brigade Enterprises Ltd. reported a significant decrease in their net debt levels during the first quarter of FY23.
For Brigade, the real estate segment debt reduced to Rs 1 crore in Q1 FY24 from Rs 46.5 crore in FY23, owing to higher collections and repayment. The overall net debt of the company stood at Rs 2,012 crore this quarter, as against Rs 2,139 crore in the previous quarter.
Debt is reducing for pure housing businesses as cash flow generation is strong and the collections are higher than interest and spending on land, according to analysts.
However, Macrotech Developers Ltd.'s net debt rose marginally from Rs 7,000 crore as of March 30, due to the seasonality impact on collections and accelerated investment growth.
"Our net debt has increased marginally, primarily on account of frontloaded business development investment. We remain on the path to achieve our full-year guidance of lowering net debt to below 0.5 times equity and one times operating cash flow, with significant debt reduction to be seen in second half," said Abhishek Lodha, chief executive officer of the company, on a post-earnings call with analysts.
Godrej Properties Ltd.'s debt also increased to Rs 6,480 crore in Q1 from Rs 5,565 crore in the fourth quarter of FY23.
“Possible to see some increase in debt likely, given the business development over the next couple of quarters ... We expect strong positive operating cash flows when there are many of these project launches happening, both in the next couple of quarters as well as next year itself,” said Pirojsha Godrej, executive chairperson of Godrej Properties, at the analysts' call after the Q1 results.
Absolute debt level in certain cases would have gone up. Developers are going to require capital for either land payments or construction or any of the other aspects, said Karan Khanna of Ambit Capital.
"Some top developers are operating at a debt to equity of less than 1x. The debt levels are quite comfortably supporting the growth for the sector. If some developer at that scale is looking at growing pre-sale over mid-20s CAGR over the next three years, that's certainly going to increase leverage on the balance sheet in the near-term," Khanna said.