The country’s largest real estate company, DLF Ltd’s March quarter results look impressive at first glance. Net sales rose 78% on a year-on-year (y-o-y) basis to Rs1,994 crore and net profit, too, vaulted 168% to Rs426 crore. But note that this comes off a very low base in the previous year.

Besides, analysts still doubt if there will be sustained off-take for real estate at higher price points across the residential, commercial and retail segments.

On a quarter-on-quarter basis, net sales contracted by 1.6%. Volumes were higher by 17%, driven mainly by luxury and city centre housing sales of 3.6 million sq. ft in regions such as Gurgaon and Panchkula.

Realizations fell from around Rs5,000 per sq. ft in the December quarter to Rs4,180 per sq. ft. The commercial segment and the retail segment played spoilsport with insignificant accretion to lease and rentals.

The company also fell short of its sales target of 15 million sq. ft for 2009-10; it sold only 12.5 million sq. ft. Sales of non-core assets (land parcels), too, were much lower at Rs1,800 crore, against the management’s projection of Rs5,500 crore. The management explained in an investor conference call that it was in no rush to sell, but would instead wait since it prefers to maintain profit margins.

In 2010-11, it plans to sell 15-18 million sq. ft. The company’s projections of Rs1,600 crore from commercial rentals appears a tall target, given that the industry is reeling under high supply. But analysts say that this could be achieved after consolidation of the rental business from DLF Assets Ltd.

The main fillip to profits in the quarter came from stringent cost measures. Staff costs dropped 50% on a y-o-y basis. So did cost of land and costs. Operating profit margin rose to 50.1% from 13.8% a year ago, and 41.6% in the preceding quarter. Yet interest costs went up by 93% sequentially to Rs314.7 crore, pulling down the net profit margin.

DLF’s shares have underperformed the market this year owing to disappointment on lower-than-expected asset sales as well as fewer project launches compared with what some analysts were expecting. Analysts estimate earnings of around Rs14 per share for the current fiscal, which means the company trades at around 20 times forward earnings, leaving little room for appreciation.

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