The December-quarter results of DLF Ltd indicate its woes are on the ebb. A positive response on new residential projects and debt reduction through non-core asset sales augurs well for the country’s largest realty firm. At Rs.1,310 crore, the 35.5% dip in net revenue from a year-ago seems deplorable, as does the 89% plunge in operating performance. But, then, the quarter’s financials are not strictly comparable with that of the previous quarters.
DLF, like most realty firms, will follow the new, prescribed accounting norms from the December quarter and, hence, it would be another four to six quarters for a realistic comparison. Hence, the drop in revenue is from the deferment of revenue recognition until a period, in new launches.
Operationally, DLF’s performance shows signs of an uptick. Leasing activity led growth at 0.4 million sq. ft leased, compared with 0.2 million sq. ft in the year-ago period. Residential sales, at 2.3 million sq. ft, were lower than a year ago, but improved from 1.6 million sq. ft in the September quarter. Arun Aggarwal, an analyst at Religare Capital Markets Ltd, in his report, says, “These numbers should improve as it launches big-ticket projects by March/April 2013.”
Meanwhile, DLF’s reported strategy to release limited stock in the market to benefit from differential pricing, which can offset changes in costs, will also help.
For the quarter, deferment of revenue recognition from its new, successful launch (Sky Court in Gurgaon) hit operating profit by around Rs.200 crore. According to the management, it could take three to four quarters, as per the new regulation, to account for the same. Also, there were one-time expenses on loss from the sale of Aman Resorts and cost inflation adjustments, which do recur but tend to be lumpy.
Given all the above factors, the operating profit came down to Rs.88 crore, which, if adjusted for a like-to-like comparison with the year-ago accounting practice, was Rs.1,068 crore—10% lower. The firm reported a net profit of Rs.285 crore, about 10% higher than a year before.
DLF’s stock fell perhaps due to the lack of clarity on the changes in accounting norms. Although challenges continue, they are being resolved. For instance, there was relief to the tune of Rs.1,870 crore on the balance sheet as debt came down to Rs.21,350 crore with some proceeds from non-core asset sales.
Some of this could continue in the coming quarters. The management is targeting to further reduce debt to Rs.19,000 crore by end-March. This, along with the reduction in interest rates, should improve profitability.
That said, DLF’s stock has rallied significantly during the December quarter, when the sale of non-core assets fructified. Further upsides could come with recovery in the real estate market sentiment and greater sales momentum.