IT upswing to pay dividends for Bangalore realtors

Bangalore-based real estate developers Sobha Developers and Prestige Estate have gained investor interest after reporting strong sales for the September quarter, beating the gloom in the realty sector.

Over the last one month, shares of Sobha and Prestige have gained 27% and 19%, respectively, compared with an 8.6% rise in the CNX Realty index and a 5.6% gain in the Nifty as a result of strong operating performance. For the three months to September, sales for Sobha Developers grew 20% year-on-year to Rs 632.2 crore, while that for Prestige Estate, sales went up by 31% to Rs 1,150 crore. Sales for both were driven by volumes and price realisation per square feet, indicating the strength of Bangalore’s property market.

In a recent report, Cushman Wakefield had pointed out that the city would benefit from its growing IT industry, especially after the sharp fall in the rupee. A report from real estate data base company PropEquity shows this to be true — Bangalore has now become the leading metro in terms of residential as well as commercial inventory absorption, ahead of Mumbai, the National Capital Region, Chennai and Hyderabad. Absorption rate measures the strength of the demand. Both companies are also ahead of their FY14 guidance numbers in terms of sales, cash collection and launches. Prestige Estate’s first-half sales and cash collection was 53.4% of the guidance, while its launches were 66% of the guidance.

The two companies also have strong balance sheets. Debt-to-equity ratio for Sobha is 1.5, while that for Prestige, it is 1. Going forward, debt for both firms is likely to increase but their debt-to-equity ratios will remain the same. In addition, the debtservicing ratios of the two companies are also higher than that of other realty firms.