Over exposure to one mkt reason for DLF’s woes?
NEWDELHI: Premiumrealtydeveloper DLFLtd’swoesarefarfrom over as the dull residential property market continues to weigh on its performance. Even after selling some key assets a couple of years back to trim its borrowings, DLF’sconsolidatednetdebt has surged from ₹22,202 crore in FY16 to ₹25,096 crore in FY17.
The key problem is its over exposure to a single market— Gurugram—where sluggish sales have led to a huge pile of unsold residential units.
The 63% decline in new sales duringtheMarchquarterfroma year ago led to a similar contraction in the full-year figures, too.
Cancellationsareaddingtothe woes. Totop it all, DLF’s interest cost outflow of ₹738 crore was higher than the operating profit of ₹710 crore for the quarter.
So, on the one hand, it is stuck with an unviable residential property inventory. And, on the other, the huge debt overhang prevents infusion of funds into newmarkets. Addtothisthefear of the Real Estate Regulatory Authority’s stringent normsand lack of clarity. All this is likely to keep the residential property market in limbo for some time.
Fortunately, DLF’s rental assets are doing well, alleviating theoverallpain. Bothrentalrates and the period of lease are improvingandthecustomerprofile is becomingmorediversified.
The firm is also trying its best to control construction costs and other marketing expenses.
But the much-awaited promoter stake sale in DLF Cyber City Developers Ltd has been hangingfire for several quarters. Thissale wouldalleviatethe debt burden to a large extent. The stock, therefore, hasbeentrading in aband, rallying onrumoursof the stake sale and falling, subsequently, as the sale does not fructify quarter after quarter. For instance, when the March quarter results failed to impressinvestors or address any of their concerns, the stock plunged 16% in three or four trading sessions. The stock has underperformed the BSE Realty index recently.
For now, the prospects for the residential market are far from rosy. An Edelweiss Research report that evaluates the risks to DLF’s earnings says that home sales may remain dull until end FY18. Income from rental assets will improveforDLFonlyinFY19 when many ongoing projects wouldbecompleted. Thepathetic state of the realty market also makes it challenging for DLF to sell its large land bank.
Options are few and tough. Either the stake sale or a revival in the property market is necessary to prevent the firm from sinking deeper into the debt trap that it’s already in.