DLF Ltd’s debt has been a longstanding concern among investors. But for the first time in many quarters, the December quarter saw a lacklustre performance even at the operational level. Consolidated net sales fell 18% from a year before and about 20% from the preceding quarter to Rs 2,034.4 crore, which was only three-fourths of Bloomberg’s consensus estimate.
The slowdown is perhaps best seen from the fact that the quarter’s gross (new) leasing of 0.42 million sq. ft was barely one-fifth that clocked a year-ago. True, residential sales jumped 33% over the year-ago period to 3.3 million sq. ft. But the rise was more from low-value plotted land sales. Construction and staff costs were contained, though this was through slower execution. Real estate companies have no option but to tide over the current bleak scenario where sales offtake is low as customers defer purchases.
The upshot was a 30% year-on-year drop in operating profit, though the profit margin was lower by a mere 100 basis points. One basis point is one-hundredth of a percentage point.
The only silver lining this quarter was the receipts from sale of non-core assets, worth Rs 1,200 crore during the December quarter, and Rs 1,620 crore during the nine months of the current fiscal. This brought down the gross debt from the September quarter marginally to Rs 24,086 crore. But there was no relief for the profitability of the firm as interest costs continued to soar from 16% of sales a year-ago and 20% of sales in the preceding quarter to 26% in the December quarter. The management, however, maintained its guidance target for sale of non-core assets of Rs 6,000 crore.
Since the slowdown in the real estate market, DLF’s spiralling interest costs have sucked out profits. This time around was worse as the revenue momentum was poor.
Net profit at Rs 258 crore, therefore, plunged by 45% from a year-ago period and 31% from the preceding quarter, way below the analysts’ consensus of Rs 526 crore.
Neither the management nor the Street expects any quick reversal in DLF’s fortunes. Though the positive news of non-core asset sales during the December quarter had lifted investor hopes for a better quarter and led to a rally in the stock price, the results are a dampener.
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Graphic by Yogesh Kumar/Mint