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Vidya Bala

The quarter ended March 2009 turned out to be real estate major DLF’s worst ever quarter since its listing in June 2007.

A 72 per cent decline in consolidated sales to Rs 1,122 crore and 93 per cent dip in net profits to Rs 159 crore for the latest ended quarter compared to a year ago numbers, comes on the back of a property slump and liquidity crunch borne by real estate developers across the country.

The financials for the full year ending March 2009 appeared relatively less dismal with sales declining by 28 per cent and net profits lower by 40 per cent.

Cost of construction rose by 300 basis points to 29 per cent of sales.

While staff costs for the full year surged, the March quarter witnessed decline in employee expenses as a result of employee retrenchment.

That the company may soon be shifting to lower profit margin regime is evident in the operating profit margins contracting by 13 percentage points to 54 per cent for the year ended March 2009.

The profit margins may well decline further, once revenues from its recent launches in the mid-income housing start kicking-in.

DLF has been among the first larger realty companies to shift focus to mid-income housing – a segment considered low on profitability but likely to generate higher volumes.

The company has made some headway in this strategy what with about 450 ‘affordable homes’ sold across the country in this quarter.

This compares better than the average 40-50 homes a month sold by the company in November and December.

However, the volumes have come at a cost.

Price resets provided to customers resulted in lowering revenues by Rs 688 crore and profits before tax by Rs 302 crore during the March quarter.

While profitability could be hurt, the focus on mid-income segment may be inevitable for DLF to generate healthy cash flows.

Other efforts such as sale of wind-power business, resorting to lease rental discounting through suitable restructuring of DLF Assets (DAL) are also aimed at generating cash flows.

The company has also slowed down on its planned execution to ensure sufficient cash flows for the existing projects.

DLF has deferred its aggressive targets (of 50 million sq ft a year) and also decided to exit long gestation township projects to conserve cash.

While these moves could help conserve cash for working capital requirements, DLF’s larger worry could be its dues from group company DAL.

While the company has cut back sales to DAL by 82 per cent (year-on-year) in the latest ended quarter, the dues from the group company at over Rs 5,400 crore, remains high.

DAL’s struggle to monetise (in the form of real estate investment trust) its leased assets portfolio and the delay in finding a private equity investor could continue to pressurise DLF’s balance sheet.

This issue could be a bigger concern than the challenges faced in selling property.

More Stories on : Performance | Real Estate & Construction | DLF Ltd | Microscope

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