DLF expects realty sector to do better within 18 months

Date : May 31, 2014

NEW DELHI: India's largest real estate firm DLF has said that it will take at least 18 more months for sales to get steady, though sentiments have improved after the formation of a new, stable government in New Delhi.

"The last two quarters have been the worst. We are not seeing much change, but there is certainly an improvement in sentiment," Ashok Tyagi, group CFO of DLF told analysts in a conference call on Friday. The company expects a growth in consumer demand for housing in the second half of the fiscal year 2015.

With increased economic activity, the company's leasing business shall also benefit from greater demand in the office and retail businesses, it said on Thursday, after releasing its last quarter results. It had reported a consolidated net profit of Rs 219.68 crore for the quarter ended March 2014, compared to a net loss of Rs 4.19 crore a year ago, riding on gains from selling its luxury hotel chain Amanresorts.

Total revenues however fell 11.5% from Rs 2,225.55 crore a year to Rs 1,969.45 crore in Q4, 2014. For the fiscal 2013-14, net profit dropped 9% while revenues rose 6.75%. DLF was helped by its 'other income' for the quarter that stood at Rs 552.15 of which about Rs 250 crore was profit from the sale of Amanresorts, which it sold in February to Adrian Zecha, its original founder, for around Rs 2,200 crore.

Concerned about the slow pace of home sales in many markets, especially in parts of Gurgaon, DLF is considering alternative products and ticket sizes in some of its projects, which would include selling plots and other low rise developments, said Tyagi. These product categories involve lower cost and faster recovery of money, a strategy it had employed a few years ago as well. The company achieved non-core sales of Rs 5,930 crore in FY14 by selling its wind energy business, insurance business, Amanresorts apart from getting a refund from the government for its Dwarka project and the Institutional Placement Programme, bringing down its net debt to Rs 18,500 crore. It had targeted reaching a net debt level of Rs 17,500 crore but that could not be achieved because it spent Rs 1,850 crore during the year on capex, land and government charges.

"For FY14, DLF's operating cash flows amounted to Rs 1,976 crore and it had to pay Rs 3,225 crore towards interest obligations, leaving a deficit in cash flows of DLF.

Additionally, DLF has done capex and land related payments of Rs 1,850 crore during the year, which has kept debt elevated despite significant asset monetisation," said Aashiesh Agarwaal, vice president-research at EdelweissBSE -0.91 % Securities.

"However, DLF has nearly Rs 4,000 crore of near-completed inventory and Rs 13,000 crore of under construction projects, which would provide meaningful cash flows, once residential volumes improve, which we believe is likely between Q3 and Q4 of the current fiscal," he said.

DLF completed the country's first commercial mortgage backed security (CMBS) issue, privately placing its luxury mall DLF Emporio for Rs 525 crore and will raise another Rs 375 crore by issuing CMBS against another mall in Delhi owned by its subsidiary DLF Promenade.

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