Key highlights of June-quaters earnings for real estate investors as companies give attention to reduce their debt.
The management commentators of real estate companies across India are now looking to repair their balance sheets by using measures such as cost rationalization, asset sales, and fundraising via equity.
Analysis done by ICICI Security Ltd. shows that on average, developers have been able to reduce their net debt by 37% to 27,400 crores, which excludes DLF Cyber City Developers Ltd, from March 2020 to June 2020. Kindly note that the analysis excludes the financial performance of real estate investment trusts.
The real estate sector has suffered a lot from the pandemic, but developer’s efforts to reduce debt are commendable. Various real estate firms have been able to reduce debt through a combination of steps by 80-160 basis points (bps), reduction in corporate overheads by 20-40% from pre-Covid levels and operating cash surplus, said an analyst at ICICI Securities Ltd. One basis point is 0.01%. Godrej Properties was one of the top firms which has raised as much as 3,700crore in Q4FY21 through qualified institutional placement (QIP), which leads to the company becoming net cash positive.
Companies like Phoenix Mills Ltd and Brigade Enterprises Ltd have also raised capital by using the QIP route to reduce debt. Recently, Macrotech Developers Ltd (Lodha) used 1,500crore from its IPO to cut debt. In the post-June quarter earnings conference call, Lodha management shared solutions to reduce its net business debt to around 1,000crore by March 2022. The company is aspiring to become debt-free by March 2024.
In the long run, companies now have strong pipelines which aim to keep debt under manageable levels. For example, Suntech Realty Ltd management sticks its asset-light and joint revenue share model which aids them expansion without sacrificing much leverage. Analysts said this is a positive change from earlier techniques of realty firms where they used to hoard large land parcels which kept their cash flow situation under control.
In short, a slim balance sheet of capital intensive real estate sector, suites well to investors sentiments towards realty stocks. A positive balance sheet could increase the valuations of firms, analysts said. Second, post-Covid solidification has quickened in this sector as small and regional developers continue to struggle with capital issues.
First Published by: Harsha Jethmalani
First Published on: Aug 23, 2021, 12:37 IST