New Delhi: DLF Ltd, India’s largest real estate company by market value, boosted net profit for the year ended March by four times, as people bought more of its homes and it sold assets to a promoter-owned company.
Its net profit for fiscal 2008 was Rs7,856 crore, compared with Rs1,934 crore a year ago. Sales rose more than three times to Rs14,494 crore.
High growth: A file photo of DLF Ltd chairman K.P. Singh. Photographer: Ramesh Pathania / Mint
This is the first time DLF has reported full-year results after it listed in July, in what was the biggest money-raising effort for a real estate firm in India. In the full year, the promoter entity of the Delhi-based firm, or DLF Assets Ltd, paid out Rs4,338 crore to DLF.
DLF Assets was established to hold completed commercial assets of the developer, which has always maintained that DLF Assets bids for buildings along with other companies when DLF sells off these properties.
For the fourth quarter ended March, DLF reported a net profit of Rs2,177 crore on total revenue of Rs4,372 crore. Comparable numbers for the corresponding quarter in the previous year were not provided.
DLF was projected to report a net income of Rs1,980 crore, according to the median estimate of five analysts surveyed by Bloomberg.
DLF said it received Rs1,794 crore from DLF Assets in the fourth quarter, but didn’t disclose how much it sold to DLF Assets in that period. Compared with the numbers for third quarter ended December, its net profit increased by less than 2%, while total revenue went up by 20%.
DLF Assets’ plans to go in for an initial public offering on the Singapore Stock Exchange through DLF Offices Trust, the real estate investment trust of DLF Assets, seem to be running behind schedule as the firm in December said it would give details of the listing in January, which it hasn’t yet done.
DLF Offices Trust holds some of the office properties of DLF, though the company has never said how many properties are held through this.
DLF didn’t hold a press conference for the earnings, but Saurabh Chawla, senior vice- president for finance, said the firm would share more on the results at an investor call on 2 May. He declined to say how DLF Assets raised the money to repay DLF.
DLF’s shares have shot up since their Mumbai listing, which was priced at Rs525 a share. However, the overall appetite for real estate stocks has waned and rival developers have had a hard time raising money. Emaar MGF Land Ltd, for instance, had to call off its initial public offering as investors stayed away, and other developers have postponed planned overseas listings of units amid a global erosion of equity assets.
Prior to the results, DLF closed 2.84% lower at Rs705.25 a share on the Bombay Stock Exchange (BSE). The current price reflects a drop of 43% from the 52-week high of Rs1,225, reached on 15 January. The Sensex, BSE’s index of 30 stocks, has fallen 15% this year, compared with a 34% decline for DLF, which is a Sensex component. The 14-member BSE Realty index has declined 33% since 1 January. The Indian real estate market has slowed after nearly five years of scorching growth, with the pace of home sales slacking, and commercial property rates also starting to soften as interest rates began to harden and banks became more selective in lending.
DLF will unlikely be spared the slowdown, according to some analysts who have turned sceptical on the stock. Two research firms have reduced their price target for the Delhi-based real estate firm by around 30% in the current month.
Indeed, Morgan Stanley research analyst Sameer Baisiwala had reduced, prior to Wednesday’s results, the price target from Rs828 per share to Rs577 a share, well below its current trading price. He had cited delays in the home and retail businesses and poor demand in the real estate market.
In addition, he said 60% of DLF’s land reserves are in three locations where there is little scope for development over the next 12-18 months because softening prices make it less lucrative to develop properties there. DLF, which primarily grew its business developing the suburb of Gurgaon to the south of New Delhi, still holds vast tracts of land in the region.
Macquarie Research analysts Unmesh Sharma and Bharat Rathi have reduced their target price for DLF from Rs1,220 to Rs880. In their report, they cited three reasons for reducing their price target: benign residential price growth along with fall in prices in certain markets, delay in listing of DLF Assets and little value from new land purchases. DLF sold properties worth Rs5,098 crore to DLF Assets in the first nine months ended December, and has recognized a profit-before-tax of Rs3,403 crore from these sales. They represent half the company’s turnover and profit for the same period.
DLF, at the time of announcing third quarter results, said DLF Assets owed more than Rs2,000 crore to the company. DLF Assets was planning to use the money it raised to pay the dues to DLF. “We believe the listing will be pushed back by 6-9 months,” Macquarie analysts said in their report.
However, an analyst with a leading brokerage, who did not want to be named because he isn’t authorized to speak to the media, said: “As 60% of DLF’s land bank is in the commercial segment, this will take care of the bottom line because it is not yet affected by slowdown in the real estate sector.”
But, this analyst said, cash flow is a problem as the company is selling a high portion of assets to DLF Assets.
DLF vice-chairman Rajiv Singh said last month DLF plans to spend $5 billion in the next seven years building 125 hotels as business and leisure travel expands. “For an economy growing at the rate of 8-8.5% per annum, the demand for premium real estate continues to be buoyant,” Singh said in an emailed release. The developer had planned to build 6,000 apartments during the quarter to 31 March, compared with 3,000 apartments in the three months to 31 December, chief financial officer Ramesh Sanka said in January. The company didn’t give the latest data.
Shabana Hussain of Mint, and Bloomberg contributed to this story.