Cracks are showing in the edifice of real estate company DLF Ltd.

Rapid expansion helped the firm build a brand and scale up during the boom phase in real estate, but size has become its bane now.

Small doses of positive news on the sales of non-core assets may have helped support the stock at lower levels. But this has done little to ease the balance sheet pressure and improve operating cash flows for the firm. Consolidated net debt has risen from Rs8,526 crore in FY14 to Rs22,120 crore at the end of June 2016.

Paring this down further requires sales recovery, which is not happening at the desired pace. In spite of news about a slow improvement in the residential real estate market, DLF’s June quarter net sales fell by 21% over a year ago. That was way below what the Street had forecasted.

A look at relevant sales parameters over the last eight quarters shows how bad the situation is. The sales pickup is not enough to ease cash flow stress in the near term. Quarterly sales booked have been consistently low at 0.2-0.9 million sq. ft. with a downward bias. In fact, the June quarter had no sales from existing completed projects. On the other hand, Rs270 crore worth of legacy bookings were cancelled.

Add to this the huge closing balance of existing projects. Although this has been reducing, DLF’s June quarter closing balance was 21.9 million sq. ft. The balance sheet for FY16 pegs the inventory at Rs17,000 crore, which is a grave concern as it is nearly twice the annual sales (including lease income of commercial assets).

Perhaps, the main issue is that the National Capital Region, where DLF has a major exposure, is saddled with huge inventory. The company is left holding a massive land bank in a region which may not be of much use in current conditions.

According to Santosh Yellapu, senior research analyst (infrastructure) at Angel Broking Pvt. Ltd , “DLF’s problem is that its residential project operations are faced with negative cash flows. The firm is, perhaps due to regulatory fears, now focusing on completing and delivering existing legacy projects than launching new ones." While this is good, it eats into its cash flows.

Meanwhile, investors are patiently waiting for promoters to sell a stake in DLF Cyber City Developers Ltd. The stock gained about 33% since April on this news. Although this sale has the potential to yield a cash inflow that can cut debt drastically, it is only a steady increase in sales of its residential properties which can generate steady cash flows to take DLF into a new growth phase.