Stock Review: DB REALTY

Mumbai-based real estate company, D B Realty, has reported its worst quarterly financial numbers since the past two quarters due to sluggish sales in the last three months. The company whose promoter was arrested in the wake of the 2G scam has recorded a sluggish growth in top line. The impact of poor financial numbers is also visible in the stock movement, which has underperformed the ET realty index by recording a 26% decline in the past one month.

For the quarter ended March 2011, the company posted a 4% growth in top line compared to 50% in the quarter ended December 2010, while its net profit almost reduced to nil compared to . 149 crore a year ago. This quarter was impacted by lower sales from the residential segment, which constitutes more than half of its total revenue. However, the company was able to sustain its top line, thanks to sales from its TDR (transferable development rights) segment. DBRL is the second largest player in the TDR segment. TDRs are obtained when the landowner surrenders his land to local authority for a public purpose. In lieu of this, they acquire equivalent of land, which can be sold in the open market.
On the flip side, DB Realty was able to contain its debt-equity ratio to 0.21:1 with the consolidated debt of . 500 crore for the year ended March'11.

 
It has recorded a 33% increase in sales to 4 million square feet, resulting in a similar growth of 33% to . 1,268 crore with a net profit of 11% in the financial year 2011. The company may face the risk of concentration of its property in the Mumbai region if there is further slowdown in demand due to high prices in this region. It can result in another blow to its top line numbers, which can dent profitability in the coming quarters. The Mumbai property market has registered a 30% decline in March '11 due to high property prices, resulting in slower demand. Further, any conflict or sluggish growth in 70% of its projects through joint venture can put pressure on the company's net margin.

DBRL stock price has almost halved in the past six months due to the crisis the company has undergone. It is trading at a price-earnings multiple of 5.89 on a consolidated basis compared to the industry priceearnings of 28, which makes the stock attractive. Even though the company's valuation looks attractive, investors with a highrisk appetite need to be cautious considering the knockon impact of the charges against the company in the telecom scam.