Cracks in realty major DLF Ltd’s edifice seem to be widening. Its September quarter performance fell short of analysts’ expectations in terms of revenue and profitability. A 1.7% drop in stock price on the Muhurat trading day indicates that investors are sceptical of the management’s optimism that “the company is now well-positioned to take off”.
Consolidated net sales fell 19.5% from the year-ago period to Rs.2,035.5 crore, reflecting customer resistance to higher price absorption. This despite selling off 1.6 million sq. ft of residential space—higher than the 1.3 million sq. ft sold in the year-ago period and also in the preceding quarter. Besides, a lacklustre 0.2 million sq. ft of leasing volume in the commercial space continued as has been the case in the last several quarters, given the economic slowdown in the country. Net sales were 7.2% lower than the June quarter.
The drop in revenue led to a fall in operating profit, even though the firm did not see a major surge in its developmental, construction and employee costs. The quarter’s operating profit fell 36% from a year ago and 30% from the preceding quarter. The pressure to service operating expenses is visible in the drop in operating margins—36.5% compared with 46.3% a year ago (excluding other income).
The one bright note for the the firm is that it has so far closed Rs.3,129 crore against the targeted Rs.5,000 crore divestment of non-core assets during fiscal 2013. Of this, Rs.2,727 crore realized from the sale of NTC mill land is expected to ease cash flows from the current quarter. However, the firm’s plans to reduce debt to Rs.18,000 crore from the present Rs.21,220 crore seems a tall order, given that the outlook to step up cash flows from its core business looks weak and interest outflows continue. One also hopes that political troubles do not hinder further divestment of non-core assets or sales or equity issuance planned by the firm.
Interest costs are nearly one-fourth of the net sales during the quarter. This also eats into profitability—net profit for the quarter fell 64.8% from the year-ago period to Rs.138.5 crore.
Only if its ambitious plans to launch “high-impact projects” in the second half of the current fiscal year fructify, will it be able to bridge the gap in cash flows and improve investor sentiment.