The adoption of new accounting standard IndAS has dented the net-worth of nine major listed real estate firms by 18 per cent and revenues by 23.6 per cent sequentially in June quarter, according to a report.
IndAS 115, which came into effect from April 1, lead to these companies applying project completion method (PCM) compared to the earlier adopted percentage of completion method (POCM), and restating their net-worth with a retrospective effect. The companies had to reverse the gains recognised on projects that were not completed as on April 1.
“The cumulative impact on the net worth of these nine companies has been to the extent of Rs 11,279 crore, an 18 per cent downward revision from their March 31, 2018 reported net-worth under the earlier accounting regime,” ratings agency Icra said in its report. The companies under analysis are Godrej Properties, Prestige Estates Projects, Brigade Enterprises, DLF, Indiabulls Real Estate, Phoenix Mills, Sobha, Mahindra Lifespace Developers and Puravankara.
These nine companies together had a net-worth of Rs 62,005 crore prior to IndAS adoption and the same stands restated to Rs 50,726 crore now, it noted. From a revenue perspective, the new accounting has seen their income being recognised for the on-going projects, declining by a whopping 23.6 per cent in June quarter compared to the March quarter, Icra said. Revenue stood at Rs 6,771 crore, against Rs 8,864 crore in Q4 of FY18 for these companies. Further, the total comprehensive income also plunged to Rs 743 crore from Rs 2,409 crore. These companies had Rs 42,517 crore debt on their book as of March 2018. This fall in net-worth has lowered their gearing from 0.69 times to 0.84 times, the report noted.
“The application of IndAS 115 has impacted financial reporting. The impact has been more pronounced on the net-worth, revenue and profit,” the agency said. “Companies had to restate net-worth as of March 2018, leading to deterioration in their gearing levels. Further, adoption has deferred revenue recognition,” it explained. Icra said going forward, it expects there will be significant volatility in realtors quarterly revenue and profitability.
While the adoption of IndAS 115 does not impact cash-flows of a company, the reversal in retained earnings on account of profit from on-going projects gives good visibility on future profits that will be recognized over the near-to-medium term as and when these projects get completed, the agency added.