Listed real estate companies focused largely in the Mumbai Metropolitan Region such as Macrotech (Lodha), Kalpataru and Rustomjee (Keystone Realtors) are exploring different financial options to cut down their debt.
Macrotech (Lodha) had high leverage with gross debt of ₹18,600 crore at the time its IPO was launched, said an investment banker.
In its latest operational update, Macrotech Developers noted that the company’s net debt was reduced by ₹320 crore to ₹3,990 crore in the March quarter on the back of record sales and healthy collections.
Similarly, Kalpataru brought down its debt from ₹11,000 crore to ₹8,820 crore after the promoters converted debentures to equity at the time of the IPO, he added.
Kalpataru also plans to use the IPO proceeds to reduce its debt-equity ratio to less than two times post the public issue.
The average interest cost on debt for real estate companies ranges between 10 and 13 per cent, said an analyst.
Recognising revenue
In the real estate business, revenues are recognised using two methods, namely, percentage of completion and project completion.
In the percentage of completion method, revenue is recognised as the work progresses, and corresponding expenses are also recognised.
However, in the project completion method, the revenue and corresponding expenses are recognised as and when the project receives its occupancy certificate.
However, the sales & marketing expenses and other overheads are recognised in the year of occurrence itself.
This may lead to losses reported during the lifecycle of the project, till revenue is recorded in the year of completion of the project in the profit & loss account, he said.
Kalpataru’s unsold inventory is ₹8,249 crore as per its offer document. The company registered pre-sales and collections CAGR of 23 per cent and 31 per cent, respectively, between FY22 and FY24.
Collections in the 9-month period of FY25 was at about ₹2,621 crore — nearly matching the full-year FY24 collections of ₹2,685 crore.
Kalpataru launched new projects of 10 mn sq ft of saleable area between FY2022 and 9 months of FY25.
The phased completion of Kalpataru’s ongoing projects will result in debt reduction, said a Bajaj Broking analyst.
Debt plays a key role in the whole scheme of project financing to be able to give reasonable return on equity, but it may lead to overleveraging as real estate is a cyclical business, said an analyst.
However, it is good to see that real estate players are exploring different options to cut their debt and monetise their assets, he said.