DLF sold fewer properties in the latest June quarter compared with a year ago. This, together with continuing burden of high debt and increase in interest costs, led to yet another unimpressive quarter for the realty major.

Volume dip

While the first quarter of a fiscal is traditionally a weak one for DLF that volumes fell 42 percent year on year is an indication that DLF is struggling to sell properties. The 1.34-million sq. ft. of sales booked in the quarter is much lower than the 3-4 million sq. ft a quarter it manages on an average. The company also did not launch new projects during the quarter.

On the leasing side too, the company let out fewer properties than last year suggesting that commercial space leasing remained sluggish.

Despite lower sales, DLF expanded its earnings before interest, depreciation and taxes marginally. That it got additional floor space index (saleable area) in its Gurgaon Phase V project, meant that its cost per sq. ft reduced. This led to improvement in EBITDA margin to 51 per cent from the 35-45 per cent range seen in recent years. But the effect of this will wear off soon, with other projects coming in to books.

DLF managed to reduce its gross debt only marginally (Rs 25,060 crore now) as its plan to sell non-core assets did not yield the desired results. Sale of its resort, mill land in Mumbai and wind energy business, if done by the end of this calendar is expected to fetch Rs 5000 crore. Until then, the company is unlikely to witness any meaningful reduction in its interest costs. Interest paid on its debt shot up from a fifth of sales a year ago to 27 per cent of sales. Earnings before interest and taxes covered interest costs by less than 2 times in the June quarter.

Lack of new launches means revenue brought to books will begin to slow. This together with high interest cost does not present a pretty picture for the upcoming quarters.

(This article was published on August 7, 2012)
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