DLF sinking deeper into debt underlines dismal state of real estate sector


Premium realty developer DLF Ltd’s woes are far from 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’s consolidated net debt has surged from Rs22,202 crore in FY16 to Rs25,096 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 during the March quarter from a year ago led to a similar contraction in the full-year figures, too.

Cancellations are adding to the woes. To top it all, DLF’s interest cost outflow of Rs738 crore was higher than the operating profit of Rs710 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 new markets. Add to this the fear of the Real Estate Regulatory Authority’s stringent norms and 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 the overall pain. Both rental rates and the period of lease are improving and the customer profile is becoming more diversified.

The firm is also trying its best to control construction costs and other marketing expenses to aid profitability.

But the much-awaited promoter stake sale in DLF Cyber City Developers Ltd has been hanging fire for several quarters. This sale would alleviate the debt burden to a large extent. The stock, therefore, has been trading in a band, rallying on rumours of the stake sale and falling, subsequently, as the sale does not fructify quarter after quarter. For instance, when the March quarter results failed to impress investors or address any of their concerns, the stock plunged 16% in three or four trading sessions. The stock has underperformed the BSE Realty index in the recent past.

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 improve for DLF only in FY19 when many ongoing projects would be completed. The pathetic state of the realty market also makes it challenging for DLF to sell its large land bank. Therefore, operating cash flows would remain negative for some more quarters.

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


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