Real estate developer DLF Ltd’s share closed Wednesday with a gain of 0.2%, despite a weak operating performance in the December quarter. The broad market itself fell 1.3% while the S&P BSE Realty index was down by 2.6%.
The relative outperformance could be partly due to a reduction in its consolidated debt, which has been an overhang. The stock may also be rebounding from the battering it has received, falling to nearly half its level from a year ago.
Nothing in its results suggests that business conditions are improving. DLF clocked lower residential property sales at 0.21 million sq. ft during the quarter, compared with 0.36 million sq. ft a year ago. It was also a tad lower than the preceding quarter. This mirrors low buyer appetite for property. Motilal Oswal Financial Services Ltd, in its preview note to the results, had pointed out that the sector is yet to break out from fundamental concerns of lack of affordability, liquidity stress and lack of transparency. Also, like in the September quarter, DLF did not launch any new projects.
The 42% growth in net revenue includes a one-time gain on account of sale of land by wholly-owned subsidiary DLF Home Developers Ltd to two joint venture companies formed with GIC, Singapore’s sovereign wealth fund, apart from a revision in construction budgets.
The silver lining in the clouds looming over the real estate segment is that commercial leasing activity has been gaining traction over the last several quarters. New lease rentals secured by DLF in the December quarter at 0.99 million sq. ft was higher than 0.71 million sq. ft in the year-ago period.
Adjusting for the land sale proceeds, the operating profit at Rs.1,009 crore was barely 10% higher than a year back, but was in line with Bloomberg’s consensus estimate. This is hardly enough to cover the rising interest burden. Reported operating profit was nearly 50% higher than a year ago, which supported the stock in spite of weak sales.
According to Arun Aggarwal, an analyst with Religare Capital Markets Ltd, “Unless sales volumes rise on the back of higher demand for residential property and new projects are launched, sustained interest in the stock from a retail investor perspective, is unlikely.”
The writer does not own shares in the above-mentioned companies.