Smaller Realty Cos Outperform Bigger Names : The Economic Time

Stocks of Poddar Developers, Ashiana Housing & Kolte Patil, which have exposure in small towns, give returns of up to 1100% in last 2 years

ET Intelligence Group: Unsold apartments in Mumbai and National Capital Region may have put the realty business out of flavour for most investors. But there is a difference -stocks of companies with higher exposure to smaller towns, with affordable home projects, have done exceptionally well in the past two years outperforming smallcap indices of BSE and NSE.

Stocks like Poddar Developers, Ashiana Housing and Kolte Patil have given returns of 1100%, 330% and 170%, respectively during this period. Against this, investors in bigger names such as DLF, Unitech, Indiabulls Real Estate and Oberoi Realty found their capital shrink.

The smaller builders have been able to attract buyers who cannot afford properties in Mumbai and National Capital Region (NCR).Poddar, Kolte Patil and Ashiana had reported a steady growth in sales and earnings with relatively low debts -thanks to their manageable land acquisition cost and strong cash flow. At the same time, they have managed a decent operating profit margins that are comparable with those building high-end projects. Several institutional investors have bought these stocks due to decent profit margins. (See table) “Almost 20% of our customers are Mumbai-based who are investing in second homes in Pune where prices are more affordable,“ said Sujay Kalele, CEO of Kolte Patil. “The trend began few years ago and we continue to see increasing interest from Mum bai residents.“

Aashiesh Agarwaal, an analyst with Edelweiss Securities, is ex pecting Kolte Pa til's revenues to grow to ` . 2,020 crore by 2016-17 from ` . 697 crore in 2014-15, given its strong project pipeline.

Poddar Devel opers -another realtor with pro jects in the out jects in the outskirts of Mumbai -has seen its revenues rise from ` . 24 crore in . 106 crore in 2014-15. Its 2012-13 to ` upcoming projects in Badlapur, Virar, Kalyan and Vasai -loca tions which are a few hours drive from downtown Mumbai -have also recorded strong sales growth. The numbers will be accounted as revenues once the projects are completed.

“There is a huge shortfall of affordable houses in Mumbai, we are bridging that gap by providing such houses at the periphery,“ Said Rohit Poddar, managing director of Poddar Developers.

In North India, Ashiana Housing has benefitted from high prices in Gurgaon. “Prices in Gurgaon rose so much that it became unaffordable for middle-income buyers. Thus, many preferred Bhiwadi which is close to Delhi and later became a part of NCR,“ said an official with Ashiana's marketing division. The company has residential projects in Bhiwadi, Gurgaon, Jaipur, Jamshedpur and a few more smaller towns.

“Ashiana has been smart enough to acquire land at the right location and lower prices.For instance, it has projects in Gurgaon, few kilometres away from the city centre and sells at an average of ` . 5000 per sq ft while in case of DLF and Unitech, the minimum is ` . 7,000 a square feet,“ said Arun Aggarwal, real estate analyst with Religare. He expects the company's revenues to touch ` . 839 crore by 2016-17 from `. 143 crore in 2014-15.

The average home prices offered by these firms are below or about . 50 lakh versus staring prices of ` well over a crore in metros.