Top 10 listed real estate firms cut debt by 37% post Covid-19
- After a slump in real estate stocks, the sector is regaining strength with the BSE Realty index rising nearly 25% last week.
India’s top 10 listed property developers have trimmed their consolidated net debt levels by 37% to ₹27,400 crore between March 2020 and June 2021, according to ICICI Securities.
This was achieved by cutting the cost of debt by 80-160 basis points (bps), lowering corporate overheads by 20-40% from pre-Covid levels, improving operating cash surpluses, undertaking asset sales and equity capital raises either through the qualified institutional placement route or through dilution at the special purpose vehicle (SPV) level, said Adhidev Chattopadhyay, analyst, ICICI Securities.
“While the overall real estate sector in India, especially the unlisted space, continues to grapple with high cost and quantum of debt, listed developers’ balance sheets have become leaner and puts them in a strong position to invest for growth in the medium term and is likely to accelerate the pace of consolidation in the sector,” he said.
Favourable factors such as healthy balance sheets, access to capital and with several unlisted, weaker developers being shunted out of the market, the market share of large organized developers is set to grow further in the next two-three years, according to the brokerage firm.
Most developers in the listed space have aggressive launch plans from the second half of this financial year and are targeting double-digit in sales value CAGR over the next two-three years, which will lead to market share gains assuming that the industry size remains stagnant.
After a slump in real estate stocks, the sector is regaining strength with the BSE Realty index rising nearly 25% last week. Economic revival, falling Covid cases, low home loan rates and new residential launches in the festive season are expected to keep the sector attractive, said analysts.
While initial expectations were for residential launches to being from October to coincide with the start of the festive season, the waning of the second Covid wave, record low mortgage rates and strong hiring/salary growth in the IT/ITeS sector led developers to advance many launches to August-September and garner a strong response, said ICICI Securities.
Chattopadhyay said the momentum in real estate is expected to be carried forward into the December quarter, which coincides with the key festivals of Dusshera and Diwali, and estimates developers to post record sales bookings in second half of FY22 led by launches. He predicts pan-India residential market share for companies under the brokerage firm’s coverage growing from 25% in FY21 to 29% in FY24.
Based on channel checks by ICICI Securities and commentary from developers in its coverage universe, most launches in September have seen strong customer response with developers keeping pricing discipline with price hikes of 4-5% on a like-to-like basis in new phases of ongoing projects and record low mortgage rates of 6.5-6.7% for housing loans.