DLF – Not Yet Out Of The Woods

DLF, the largest Realty player in India announced its December 2012 quarter results today. Though the company has managed to post growth in bottomline on a YoY basis, the results have been quite disappointing. The company posted a topline of Rs 1310.04 crore and a bottomline of Rs 284.80 crore as compared to Rs 2034 crore and Rs 258.71 crore respectively in the December 2011 quarter. Considering the company’s modest improvement on the realisation front and in the economic scenario, the street estimates for DLF were above Rs 350 crore.

As regards the operational performance, DLF delivered around 0.58 million sq. ft. in the December 2012 quarter. In addition to this, around 2.27 million sq. ft. space was booked in Q3FY13 as against 1.59 million sq. ft. in the December 2011 quarter. In the December 2012 quarter, the company has once again gone ahead with the non-core asset sales. Here the company has received the complete amount of Rs 2727 crore against the sales of NTC mills. DLF has also signed the share purchase agreement on the sale of Silverlink Resorts (Aman Resorts). As for the 9MFY13, the total monetisation of non-core assets stands at Rs 3160 crore. This has helped the company in reducing its debt burden marginally.

As of December 31, 2012, the consolidated net debt of the company stands at Rs 21,350 crore. However, post the Aman Resorts and Wind power unit sale, it is estimated to be at Rs 19,000 crore. But we suppose that it is still on the higher side.

Regarding the overall scenario in the Realty sector, the management has stated, “Stretched approval cycle continues to impact fresh supply; high land and construction costs maintain high prices across most of the micro markets.” It further added, “Land acquisition bill may thwart the aggregation of large parcels of land, while the Real estate regulatory Bill may result in another layer of approval process, impacting project life cycles.”

Though the scenario looks tough, some amount of relief is expected with the RBI cutting the repo rate by 25 basis points. However, we believe that the company has its own set of worries on the debt front and hence, investors would do better by avoiding the scrip at the moment.