Saturday, February 09, 2013

DLF: TURNAROUND

Slowdown had a sobering effect on DLF’s meteoric rise in the early years of this decade. With a new look and renewed vigour, the company attempts to claw its way back to its glory days. by Virat Bahri

The primary prerogative was to get rid of excess baggage – businesses as well as lands where development was not anticipated in the next 5-7 years. Out of a divestment target of Rs.55 billion for FY 2009-10, the company unlocked value of Rs.18 billion, and targets a further Rs.28 billion in the current fiscal. Hotel venture Aman Resorts is immediately on the block. Reports say that Malaysian Sovereign Wealth Fund Khazanah is expected to take it up for around $300-350 million. DT Cinemas was sold to PVR last year with a further commitment that DLF would have PVR as its exclusive multiplex anchor tenant for all its future malls. They attempted to divest the wind power business (valued at Rs.10 billion) as well, but decided to retain it, as they were unable to get the right suitor. The company also pulled back on four of its SEZ projects in West Bengal, Gujarat, Haryana & Orissa on account of the dip in commercial space demand. DLF is now planning to revive the one in West Bengal, but the other three are still denotified. But according to G. P. Savlani, Resident Director, CREDAI, “Real estate players will not talk about SEZ much after implementation of the Direct Tax Code (which would cut all income tax benefits).” DLF has also restructured its business into two business units last December. The development company is further demarcated geographically into Gurgaon, Super Metros and rest of India and the annuity company is divided into offices, malls and facilities management & utilities to better streamline businesses and ensure aggregation of returns and stable cash flows from these businesses.

As far as the devil of debt is concerned, the gross debt has increased to Rs.216.77 billion by the close of March this year as compared to a gross opening debt of Rs.163.2 billion on April 1, 2009 (due in part to the purchase of SC Asia’s stake in Caraf) and a D/E ration of around 0.75x. Interest rate has been brought down to 10.5% from 11.98% in December 2008 and period has increased from under one year to 3-9 years. Besides, the focus is on faster execution of existing projects.

The most critical aspect for DLF’s revival will be the pick up in demand. The Lower Parel project gives indications that the exuberance is back. But Savlani says that it is unique to the Mumbai market only, where Lodha Developers won the contract for the 101-storey tower project recently for Rs.40.5 billion. But residential is definitely on the revival mode in different parts of the country as consumer sentiment improves with booming economy, lower interest rates and more economically priced projects. Param Desai, Analyst – Real Estate, Angel Broking, quotes, “FY 2011 (for DLF) will be largely driven by residential sales, both middle income and luxury.” Ministry of Housing & Urban Poverty Alleviation projects a shortfall of 26.53 million dwelling units in urban areas by 2012. Absorption rate of residential units has increased to 21% in Q1 2010 from 15% in the previous quarter, according to a report by Jones Lang LaSalle Meghraj (JLLM). DLF anticipates bookings of 1-1.5 msf for FY 2010-11 in the luxury segment (Mumbai & Delhi), 2-3 msf in city centres/high end (Gurgaon, Chennai & Cochin) & 12-14 msf in the mid-income/value housing segment.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

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