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At a glance: Economy & realty in October 2011

Moneycontrol
Global economic slowdown and uncertaintyin the financial markets is finally having its consequences on the Indian economy with all the lead indicators of growth showinga downward trend. Index of Industrial Production (IIP) grew at 4% in August 2011 which is at one of the lowest levels since April 2010. The manufacturing Purchasing Managers Index (PMI) is at its two year low of 50.4 for the month of September 2011 raising serious questions about the growth momentum of the economy.
PMI is a survey based compilation by HSBC of manufacturing sentiment and is considered a good indicator of factory output. An index level above 50 indicates expansion, and higher the index above that threshold greater the growth. The impact of slowdown is already being felt on the real estate market with residential segment witnessing sluggish demand across all the major cities.
Apart from demand slowdown, impact of rising cost of funds, increasing construction cost and delays in government approvals is worsening the already dismal condition of the sector. Like any other sector, the aforementioned factors clearly point towards a price correction in the real estate market. However, residential prices in most of the cities have either remained steady or increased marginally in the past few quarters. This implies that demand-supply conditions are not having any significant impact on the residential market prices in the short term and there are other factors at play which are having a greater influence on price.
Financial condition or holding capacity of real estate players is one such factor which influences the price movement in the marketto a great extent. A reasonable estimate of the stalemate between buyers and developers coupled with an understanding on the holding capacity will provide the directionin which prices may move in the market going forward. For the purpose of understanding this relationship, here's a financial analysis on a group comprising leading 19 realty players.
Consolidated Financials of Real Estate Companies (INR Bn )

Particulars


7-Mar


8-Mar


9-Mar


10-Mar


11-Mar


Income


148


299


209


192


242


Interest paid


8


14


22


24


31


Profit after Tax


48


126


72


39


38


Networth


116


387


459


570


601


Borrowings


223


335


391


436


493


Since FY08, revenues and profits have dropped by 19% and 70% respectively, despite property prices witnessing anincreasing trend. On the other hand, debt and interest outgo have increased by 1.5 and2.3 times respectively in the same period. Although networth has also strengthened during this period, it happened mainly during FY08 when equity markets had a flair for real estate Initial Public Offerings (IPOs) and many realty companies raised large amount of equity through this route. However, fund raising through this route has slowed down considerably in the last couple of years due unfavorable market conditions for realty companies.
Consolidated Liquidity Ratio

Particulars


7-Mar


8-Mar


9-Mar


10-Mar


11-Mar


D/E


1.9


0.9


0.9


0.8


0.8


Interest coverage ratio


9.3


12.5


4.8


3.2


2.7


DSCR


1.42


1.54


0.91


0.51


0.56

Financial Stress Level of Real Estate Companies (INR Bn )

Particulars


7-Mar


8-Mar


9-Mar


10-Mar


11-Mar


Operating cash flow ( OCF )


-101


-73


3


100


39


Cash outflow for interest &


48


120


129


174


171


debt Repayment


 


 


 


 


 


Stress ( Interest + Debt


149


193


126


75


132

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