The volley of allegations about a nexus involving Robert Vadra, the Haryana government and DLF Ltd about murky deals to acquire assets, if proved true, would be a big blow for the firm and erode both its asset value and market valuation.

Along with planned non-core asset sales, which had just started to bear fruit (read the earlier Mint story here), all that DLF needed to limp back into a higher profitability zone was better cash flows from operations.

Of course, the June quarter posted poor sales and the September quarter would see no major improvement in residential sales or lease rentals. But in spite of this, a strong macro outlook and DLF’s strategy to sell premium property in Gurgaon and ramp up sales in the fast-growing NCR (Delhi) belt through the second half of fiscal 2013 was just beginning to boost investor confidence. The Vadra allegations could jeopardize these plans.

One of the allegations is that the Haryana Urban Development Authority managed to unscrupulously enhance FSI (floor space index) in Phase V, Gurgaon to favour DLF. This could at the very least delay and hit sales of its planned premium complex—Magnolia II. The first phase, according to analysts, was a runaway success and DLF was planning to leverage the same and launch the new phase in the forthcoming months.

Another allegation pertains to large land acquisitions made in the Manesar belt (Gurgaon) where DLF’s new residential projects’ are under construction. Even a stay order on existing projects or on its new launches could hit cash flows and estimated earnings.

Unfortunately, the controversy comes at a time when a significant amount of 2,700 crore is being realized from the sale of NTC Mill land—the first large step towards reducing DLF’s huge debt of 22,680 crore. In the earlier quarters, sale proceeds from non-core assets came in trickles, which did not alleviate the burden as mounting interest costs ate into operating cash flows. In fact, the allegations pertain to regions where DLF’s prime land parcels exist and account for a significant chunk of its net asset value. Not only could it hurt core operations, the allegations raise concerns on land dealings, too, which, in turn, could hinder quick monetization of assets in these belts.

Meanwhile, as the tussle of allegations and rebuttals goes on, DLF’s credibility and stock price are likely to continue to see erosion.

Close