New Delhi: Realty analysts in the country say it is critical for DLF Ltd, India’s top real estate firm by market value, to revive sales and cash flows in the next two quarters failing which, they say, the firm may be forced to start selling chunks of its land holdings and sharply reduce home prices.
The developer’s plans to make good receivables from DLF Assets Ltd (DAL), a firm owned by the realty firm’s promoter family, will weigh heavily on its shares, they added.
DLF, late on Thursday, announced financial results for the fourth quarter (Q4) and full year of fiscal 2009. Net profit at the firm declined 41% to Rs4,629 crore for the fiscal year gone by, from Rs7,812 crore in fiscal 2008, and revenue declined by 28% to Rs10,541 crore. The results were released at 10pm.
Stretched resources? A DLF residential complex in Gurgaon. Rajkumar / Mint
A survey of six analysts by Mint last week had projected that DLF’s net profit would decline 38.59% and revenue shrink by 35.86%.
DLF’s performance in Q4 to 31 March was worse. In that quarter, it posted a 93% decline in net profit at Rs159 crore, from Rs2,177 crore in the year-ago quarter. Revenue in the quarter declined by 69% to Rs1,351 crore.
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One analyst projected a vicious circle ahead for DLF. “If the status quo continues, DLF will not be able to generate cash in which situation they may miss deadlines on project completion...and to generate cash flows, they will have to start selling land or refund their buyers if projects get delayed,” this analyst, working at a domestic brokerage firm, said on condition of anonymity. “Sales need to happen for DLF to generate cash and if it does not happen at current price levels, they will have to bring down prices further.”
In an emailed statement, DLF said that around 450 flats in its so-called affordable housing segment have been booked across India at the end of Q4.
“DLF has already reduced prices at some of its projects—the only company to do so—and we might see some more price reduction at its other projects during the next few quarters,” another analyst with a domestic brokerage firm, who too requested anonymity, said. “The company might also sell some of its land and other assets, but that would be mainly to bring down its debt position.”
DLF, which did not release any data for Q4 other than a press statement, had debt of around Rs15,525 crore at the end of the December quarter. The firm has in the past released detailed financial data through a presentation on its website, but that was not available until late evening on Friday.
Analysts expressed concern over DAL, a firm that buys completed projects from the developer and is majority-owned by the family of DLF chairman K.P. Singh. DLF, which stopped sales to DAL in Q4, has not delivered to the promoter firm the amount of constructed space originally planned, the firm said in the statement, adding DLF had received nearly Rs800 crore as advance from DAL in the quarter.
It was not immediately clear if this had brought down the money DAL owes DLF, which as of end-December totalled Rs5,500 crore.
Since its founding a little over two years ago, DAL has received a funding of $1.15 billion (Rs5,773 crore today), in total from Symphony Capital Llc., DE Shaw and Co. Lp and Lehman Brothers Holdings Ltd. Symphony acquired Lehman’s stake in DAL in November last year.
In March, there were reports that DLF was buying DE Shaw’s stake in DAL or merging DAL with itself. It has so far declined comment on such rumours.
“Till the time DLF sorts out the DAL issue, we will not revisit our rating on DLF,” an analyst with an international brokerage firm, who did not want to be identified, said. The firm has an underperform rating on DLF.
Analysts attribute the sharp fall in net profit for Q4 and the year end to DLF’s suspension of sales to DAL. “We will not have a visibility on future earnings of DLF till the DAL issue is sorted out,” the analyst said. “The company needs to clarify on DAL.”
A fourth analyst, again at a domestic brokerage firm, said he expected both revenues and profits to “decline sharply in the next few quarters” since sales to DAL were not taking place. “...the market is now looking at what DAL owes to DLF and what kind of structure DLF is going to come up with for DAL. Either way, there will be a loss in valuation of DAL and (investors) want DLF promoters to take the entire loss in valuation.”