New Delhi: Are India’s top real estate companies finally on top of the debt situation that threatened to overwhelm them earlier this year?
Numbers for the quarter ended 30 June seem to indicate just that, though analysts say the firms are still not out of the woods and that they could find the next three quarters challenging.
Still, most top companies did manage to reduce the debt on their books in the three months ended 30 June.
By selling assets and equity, and restructuring debt, the companies have managed to reduce their debt to equity ratio which was between 1 and 1.5 (between Re1 and Rs1.50 of debt for every Re1 of equity), to between 0.5 and 0.6.
Dealing with debt: The DLF Park Palace construction site in Gurgaon. DLF reduced its debt by selling non-core assets and exiting projects with long gestation periods such as the Bidadi and Dankuni townships. Rajkumar / Mint
India’s largest developer, DLF Ltd, reduced its net debt to Rs11,686 crore at the end of June compared with Rs13,958 crore at the end of March, according to its results for the quarter.
It did so by selling non-core assets such as hotel plots and exiting long gestation period projects such as the Bidadi and Dankuni township, to raise Rs500 crore, and by the infusion of around Rs2,500 crore from associate DLF Assets Ltd, promoted by the Singh family that also promotes DLF Ltd.
DLF’s debt to equity ratio is down to 0.5 and the company said in a mailed statement that it plans to reduce this to 0.3 by March.
By then, the firm also plans to halve the debt on its books to Rs6,186 crore by selling more non-core assets and infusions from DLF Assets.
Unitech Ltd, loaded with debt of around Rs10,900 crore in December 2008, has reduced the debt on its books to Rs8,262 crore at the end of the June quarter. Its net debt to equity ratio is down to 0.56 from 1.65 at the end of the March quarter. Unitech did this by raising at least Rs900 crore through the sale of two hotels in Gurgaon and an office complex in Delhi. It also raised Rs4,385 crore through two rounds of qualified institutional placements (QIP), or share sales to institutional investors, in April and June.
Other real estate companies too have tapped the appetite for stock among institutional buyers to good effect. Mumbai-based Housing Development and Infrastructure Ltd (HDIL), Indiabulls Real Estate Ltd and Sobha Developers Ltd raised money through this route. And two more developers, Parsvnath Developers Ltd and Omaxe Ltd, are looking to raise money the same way.
HDIL has reduced the debt on its books to Rs2,900 crore at the end of June from Rs4,143.31 crore at the end of March. And its debt to equity ratio has fallen from 0.94 to 0.45 in the same period.
An analyst said it is possible for companies to use the capital markets route to solve their debt problems. Bangalore-based Sobha Developers raised Rs526.8 crore through a QIP in June. This helped the company reduce its debt by Rs400 crore to Rs1,500 crore at the end of June from Rs1,900 crore at the end of March.
DLF’s debt to equity ratio is down to 0.5 and the company said in a mailed statement that it plans to reduce this to 0.3 by March. Ahmed Raza Khan / Mint
The company’s debt to equity ratio fell from 1.65 to a more respectable 0.85 in the same period. But, in absolute terms, a debt of Rs1,500 crore and a debt to equity ratio of 0.85 are still high for a company the size of Sobha, which reported revenues of Rs974.74 crore and a net profit of Rs109.67 crore in 2008-09.
“Overall, if you look at it, there is still some stress in the system” said Aashiesh Agarwaal, an analyst with Edelweiss Securities Ltd. “It is, however, possible for developers to restructure their balance sheet by accessing the capital markets.” There are more such developers looking to raise equity from the market, and where there is still value to be taken, there is a good investor appetite, added Agarwaal.
Two other analysts said that companies will be able to significantly reduce their debt only after three more quarters when cash flow from their operations begins to improve.
“Developers have raised the money but now they need to service it by generating cash flow,” said Manoj Jain, an analyst with India Infoline Ltd. “Everyone has launched low-cost housing to get money from bookings, but if they are not able to sell the properties they will not be able to generate cash.”
And to generate cash, the companies will have to see sustained demand, said Shailesh Kanani, an analyst with Angel Broking Ltd, who discounts the recent increase in demand for real estate properties.
“The demand that we saw might have been a pent-up demand because for a long time there was nothing affordable in the market,” he added. “So, we cannot be too enthusiastic about demand returning.”