Realty firms’ net profit down by 41% in last 8 quarters: Report
A fall of 41 per cent of Net Profit in the quarter ended December 2013,has been registered of top 25 real estate companies, in comparison to peak period of quarter ended March 2012.As per the report by global realty consultancy Knight Frank the net profit margin have fallen from 13.6 per cent to 9.7 per cent.
According to the report released on Thursday, “A tightened monetary policy by the central bank (RBI) increased the policy rates which in turn pushed up the base rate for scheduled commercial banks. Rise in the gross debt levels, coupled with the increase in cost of funds was a double whammy on the real estate companies, adversely impacting the net profits.”
Since Q4 of FY12, operating profit of realty companies has been constantly clocking a quarterly run-rate of Rs 2,800 crore to Rs 2,900 crore as stated by Knight Frank. The report mentioned that this accomplishment can be achieved mainly because of continuous price rise across India. Across major cities, residential property prices have observed a double digit growth rate during Q4 FY12 to Q3 FY14. The operating profit margin (OPM) for the top 25 real estate companies in spite of steady operating profit levels has contracted by 900 basis point (bps) from 50 per cent in Q3 FY13 to 41 per cent in Q3 FY14.
It said rise in input cost can be recognised from the decline in operating profit .Constituting of major construction material like cement, iron and steel, labour, building bricks, paints, plywood, and so on, the building construction cost index has increased by 6.3 per cent during the last one year. Of 25 listed real estate companies the sales volume has come down by 43 per cent to 11.80 million sqft in third quarter of FY 2014 compared to their peak of 21.85 million sqft, eight quarters ago, the report said.
Knight Frank alleged High interest rate administration and high real estate prices together with tentative job prediction deterred end-users from committing themselves to the largest buy of their life. Depending on the sales volume, in the past eight quarters the market share of south India-based companies has gained the most.
Bangalore and Chennai witnessed the highest growth in their market share from 16 per cent in Q4 of FY12 to 33 per cent in Q3 of FY14 because of its affordable residential properties across the city and being an end-user driven market.
In terms of sales volume north India based companies continue to dominate the Indian realty market; there is a continuous fall in its share from 75 per cent in Q4FY12 to 51 per cent in the latest quarter. Majority of the Northern India based real estate companies have been trapped due to huge debt, compelling them to change their strategy.
It said, instead of frenzied launches as in the past, they went slow on new launches and concentrated on completion of launched projects and sold non-core assets in order to de-leverage their balance sheet. The overall share of the dominant real estate region has been adversely affected by these changes in the business strategy. The west India-based realty companies regained lost ground from the lows of Q4 FY12.
Source: Business Standard
balance sheet, Bangalore, Building bricks, Building construction cost index, Business strategy, Cement, Central bank, Chennai, commercial banks, Gross debt levels, Indian realty market, Iron, Knight Frank, labour, monetary policy, net profit, North India, Operating profit margin, Paints, plywood, Real Estate Companies, Sales, South India, steel
