Its sales may have expanded 21 per cent in the June quarter over a year ago, but DLF's business sure has a long way to go before it gets back to the heydays of 2006-07.

Sale of plots, rather than completed property, brought in much of those sales. DLF continues to focus on sale of non-core assets to generate cash and reduce debt of Rs 21,500 crore (debt-equity ratio less than 1).

However, decline in other income and higher interest costs dragged down net profits. The earnings would have grown very marginally even if adjusted for the ‘other income' component.

Rental income, which accounted for a good 15 per cent of revenues, may have aided improved margins. EBITDA margins bounced back to 45.4 per cent in the latest ended quarter after a sharp dip in March quarter (27 per cent). High construction costs booked in the March quarter as a result of inflationary pressures have not recurred in the June quarter, although construction costs inched up.

Realisations mixed

DLF's weighted average sale rate of residential property has improved sequentially, although the average Rs 5,032 a sq.ft is lower than the year-ago rates of Rs 6,074 sq.ft. This variation could be due to lower realisations from plot sales in regions such as Indore.

Sales rates of commercial complexes though need to be watched, if the lower June quarter sale rates (compared with March) are any trend.

Improving rentals in DLF's leased property appear to be the highlight of the June quarter; with commercial and retail let-out properties registering increases.

The company has stated that it has built-in about 15 per cent escalation on lease rates on most of the leased properties every three years.

DLF's monetisation of non-core assets generated about Rs 165 crore during the quarter. The company has a target of generating Rs 6,000-7,000 crore through similar divestments over the next two-three years to reduce debt levels. While this may be a prudent strategy given the current market conditions, it may be a hint that the company may not generate sufficient cash flow from operations to deal with the leverage.

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