But for good brand equity, not much seems to be going in favour of realty firm DLF Ltd. The last two quarters at least had seen residential sales volume and commercial lease rentals inch up.
But the firm has failed expectations on both counts in the June quarter. Fresh commercial leasing was down by a quarter of the volumes clocked a year ago. Residential sales volume was up about 15%, about two-fifths of which came from plotted land sales, which has a shorter sales cycle. Thanks to this, DLF’s revenue grew 21% over a year ago.
Higher revenue helped expand operating profit. However, inflationary pressures were reflected in construction costs, affecting profitability. Operating margins contracted by about 290 basis points from a year back. One basis point is one-hundredth of a percentage point.
DLF’s biggest problem has been its burgeoning debt. After a marginal repayment during the June quarter, the gross debt at Rs 24,000 crore (60% higher than a year ago) sucks out operating profits. Interest outgo comprises a little over two-thirds of its operating cash flows.
The management is hopeful that higher deliveries and customer advances will help improve cash flows in the next few quarters. It plans to sell land and non-core assets worth about Rs 6,000 crore to repay debt, which is critical given the rising interest rate scenario.
However, the developer managed to sell only Rs 168 crore of assets during the quarter. “Interest charge now comprises 20% of revenue (vs 15%/18% in 2009-10/2010-11), highest since listing,” a report from JM Financial Research notes.
This would most certainly eat into net profit, which was down 13% against a year ago. Meanwhile, delay in project approvals, stiffer interest rates and high residential prices are headwinds that have adversely hit realty firms, including DLF.
That’s why the realty index of BSE has underperformed the benchmark Sensex since January. DLF’s shares, too, dipped 2.4% following the announcement of results.
In fact, analysts’ presentation paints a rather grim picture, indicating fewer residential launches and lower commercial leasing volumes compared with previous quarters.
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