Are DLF investors waiting for Godot?
Apart from a buoyant mood on the bourses on Thursday, there is nothing that justifies the 2.9% jump in DLF Ltd’s stock price. On the contrary, the country’s largest real estate firm put up a dismal December quarter performance. Its fundamentals are on shaky ground with an unendingly long wait for a bailout.
The company has managed to keep investor spirits up through the hope that the promoter stake sale in DLF Cyber City Developers Ltd (DCCDL) will minimize its debt woes. During the quarter, consolidated debt inched up further by Rs1,257 crore to Rs24,397 crore, from the September quarter levels. The management’s confidence that the stake sale is close to fruition is the only reason why the stock has moved up.
What this means is that a huge chunk of nearly three-fourths of its operating profit of Rs1,078 crore goes out as interest payment towards loans. The developer is uncomfortably wedged between high interest cost and low operating profit for several quarters. Interest cover ratio, a yardstick of how well a company can service its loans, is a mere 1.4.
One way to improve operating profit is through higher sales. But this too seems a distant dream given the huge residential units’ inventory in DLF’s key market—the National Capital Region. Net sales during the quarter were lower than a year back, with cancellations too. An Edelweiss Research report says, “The company expects to spend Rs3,500 crore to Rs4,000 crore towards completing ongoing projects over the next few quarters versus estimated collections of Rs17,500-18,000 crore from pending sales and receivables from sold units to be accrued over the next three to four years.”
Demonetization has adversely effected real estate deals the most as this segment saw the highest cash transactions earlier. Analysts believe that it will take many quarters for realty to gain momentum again. Only office premises lease rentals have kept the pot boiling in the last few quarters for DLF.
The management too, in its presentation, has hinted at a shortfall of Rs750-900 crore in the next few quarters, on subdued demand and sales. “This can spike debt levels further, which is a grave concern,” adds a report by Emkay Global Financial Services Ltd.
The writing is clear on the wall. Only a white knight, who can buy out the promoter stake in DCCDL, can pull DLF out from the swamp. For an investor therefore, it is a tricky call to take: sit back and wait for the opportune time when the deal will go through to lift up the company’s financial health and stock valuation or jump off the sinking ship.