Propertywala

It may also be understood that only the residential market has seen a recovery, while the commercial and retail segments are still under stress.

Among all the listed companies, Orbit and Indiabulls Real Estate (IBREL) are expected to show a marginal improvement in sales. With a huge fall in property prices in the luxury segment, Orbit has shown 5% increase in sales. With a 70% YoY decline in revenue, Parsvnath is expected to see the highest fall. DLF and Unitech may follow with 60% and 54% decline, respectively. As a move to generate cash for business activities, both these companies have exited from unviable projects and also sold noncore assets. This would help in completing under-construction projects. Even some large SEZ projects have been shelved.

Many companies have launched new residential projects in affordable housing segment. Though construction costs would be low, EBIDTA margins would decline by 5-10 % average due to sharper decrease in prices. However, companies like Unitech, DLF, HDIL, and Sobha that have raised funds have improved their balance sheet positions and thus lowered their overall finance cost. Average EBIDTA margin for June’ 09 would be 39% as against 43% for March’ 09. Peninsula Land is expected to show positive margin, as the number of projects was very limited, hence leverage was also low.

Despite all the gloom, realty sector is seen to show some improvement in margins. The overall PAT margins for the June quarter will be at 26%. Though real estate sector is one of the major contributors to the over all profit growth for India Inc, yet it is low as compared to the past PAT margins of 35-40 %. However as alternate sources of funds have become available, builders have managed to improve their cash position. Loans have been restructured and thus interest liability has been reduced. Developers like Mahindra Lifespaces, IBREL and Peninsula Land are expected to report PAT margins upward of 30%.

In the past, a steady growth trajectory of software companies allowed to predict and plan their additional requirement for space. In 2003-07, new hires by the top three software firms like TCS, Wipro and Infosys grew at over 20% each year. For 2008, analysts expect a drop in new hires. Says an analyst with a Mumbai-based broking firm: Hiring will continue to slow down in future if the dollar remains weak. A slowdown in the US economy will worsen things further for software companies in the short term.

Industry experts expect that if the weak market continues to persist, companies may actually slow down their investment in the upcoming SEZs. Companies like Unitech and DLF say that work in all their new zones across the country are progressing on schedule and they are not pulling back yet. The DLF executive, however admits, We will be in no hurry to get approvals for new IT/ITeS zones in the near future.

Software companies read the situation as a positive development. In the last two years, lease rentals in metros like Mumbai, Delhi and Bangalore have shot up nearly 50-60%, forcing firms to move to smaller cities like Pune, Bhubhaneshwar and Jaipur.

Parsvnath had several project in hand. Parsvnath would be focusing on development of SEZs, hotels, highways, retail and telecom.

Parsvnath’s application for the unified license was rejected by the Department of Telecom last week. So they can’t make their entry in telecom business. On this point, Mr. Jain said, “We will get into the telecom sector and our investment will be in the range of up to Rs 20,000 crore”. However, he has not explained the strategy and said that the company is watching the situation.

On the issue of other businesses, Jain said the company would enter the retail business in a big way and would soon announce its roadmap. The company is in talks with some of the major international retailers. Parsvnath is also believed to be in talks with two French majors Carrefour and Club Casino to set up retail chains in India. Jain said that “we are sure to open our first retail store in 2008 and possibly will start with Delhi”. Jain said that the roll out of the retail outlets would start from this calendar year itself.

On the topic of types of retail stores and branding, Jain said that the details were being worked out but the stores would be in large formats such as complete food bazaar and as far as branding was concerned, the company would take a decision after finalizing the overseas partner. The company owns over 14 million square feet of land for retail business in 48 cities and that would be an advantage for Parsvnath as all other prospective retailers would have to bank upon them for space.