DLF continued its trend of strong sales and muted net profit growth for the third successive quarter this fiscal. The 22 per cent growth in consolidated sales for the December quarter over the same period last fiscal , did not ultimately translate in to strong growth in net earnings. This was as a result of higher interest outgo, increased taxes and enhanced share of minority interest in profits.

Increasing difficulty in receiving project approvals on time started affecting DLF's new launches in recent times. As a result, its development wing, which sells residential and commercial property, managed only one launch in the third quarter. It booked 2.48 million sq ft. in the December quarter as against 3.12 million sq ft. in the previous quarter. The company has 8 million sq ft of new launches in the pipeline.

Strong margins

Despite very little increase in its residential property prices compared with the same quarter last fiscal , DLF managed to expand its operating profits by 33 per cent as a result of pick-up in sale price of its commercial buildings. Average sale rate in this segment has risen 83 per cent over the past one year, although they have fallen from the September sale rates. Location of projects (across quarters) also results in variations in the average sale rate. Operating profit margins rose to three percentage points to 41 per cent .

Higher interest costs though acted as a drag. Increase in debt, with fresh borrowing of Rs 2,046 crore, even as the company managed to repay Rs 1,800 crore, resulted in hiking finance costs.

Repayment of preference shares including premium to the tune of Rs 449 crore may have resulted in higher borrowing.

The company's average cost of debt at 10.8 per cent is only marginally higher than that of the September quarter (10.5 per cent). However, interest costs of the more recent loans availed may have come at higher rates. This is likely to have a more pronounced impact on earnings in the next couple of quarters unless DLF manages to pay off higher-cost debt.

In order to improve it cash flows, DLF has, after almost a decade, resorted to sale of plotted development in Gurgaon. The company has stated that the impact of this sale would be visible in the fourth quarter cash flows. Funds from this sale, to some extent, help operating cash flows, which saw a dip in the latest ended quarter.

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