DLF: A Proven Track Record

India’s DLF is the only real estate company to be listed on the BSE Sensex and the NSE Nifty. No one can dispute the fact that DLF has a proven track record of 62 years of sustained growth or that it comes up with constant business innovations to expand. Today, DLF has a pan-India presence across 30 cities. The company has approximately 238 million sq. ft. of completed development and 413 million sq. ft. of planned projects, of which 56 million sq. ft. were under construction during FY10.

Apart from DLF’s core business of developing residential, commercial and retail properties, the real estate major has infrastructure, SEZ, financial services, hotel and shopping mall businesses.

Multiple Troubles
But DLF has had to tackle trouble on multiple fronts all through the year. Frequent legal tussles with consumers, resident associations and occasionally with authorities, coupled with a high-debt burden and cash flow issues, have together impacted the image of DLF, otherwise the country’s largest real estate firm in terms of revenues, earnings, market capitalization and developable area.

Perhaps, this is the reason that in our survey of the Most Respected Companies, DLF is placed at the 54th position. Even though DLF has changed its operating style for its development business and for projects, it has been battling all round negativity.

In recent months, DLF has shown signs of improvement in business sentiments. For example, recently it received Rs 1,992 crore from Singapore’s sovereign wealth fund GIC, completing the deal to sell 50 per cent stake each in two upcoming projects in the national capital. DLF had in September this year announced a stake sale in two projects to GIC. In November, the fair trade regulator CCI had approved a joint venture with GIC for these two projects in central Delhi. “We hope that this investment is a beginning of a new relationship with GIC at the project level. We look forward to working together with GIC in many projects, both residential and commercial,” DLF senior executive director finance Saurabh Chawla had said on the GIC deal.

However, for investors, stakeholders and financial or market analysts, the single point agenda for scrutinising DLF is in reference to its balance sheet. Despite a 21 per cent jump in its second quarter net profit in 2015 compared to the same period a year ago, DLF continues to face liquidity issues resulting in half-finished projects. Its woes can be blamed on the state of the realty sector; low consumer interest, delayed approvals. And cost capital isn’t really helping.
The big concern for DLF has always been the mounting debt in its books and its drive to sell stake in subsidiaries for fund raising. However, DLF’s net debt at the end of the September quarter stood at Rs 22,525 crore.

Analysts have warned that higher capex on finishing shopping mall projects, muted interest in residential projects and a higher cost of construction will make DLF’s books less lacklustre in future. DLF’s proposed 40 per cent stake sale in its rental business, DLF Cyber City Developers, could be the game-changer, according to a recently published JP Morgan report. Once the money raised is re-invested in DLF, it could cleanse the core residential business of debt and also leave surplus cash for business.

Positive Outlook
Legacy legal issues and bad press due to Robert Vadra connections continue to hurt DLF’s image. However, Kotak, in its recent report, explicitly stated that “Transparency and delivery commitments have improved further in its residential business, although we continue to differ on its strategy on pricing and sales. We maintain our positive stance as we pin our hopes on balance sheet recovery in FY2017”.

Though the overhang of CCI continues to mar brand DLF most real estate analysts point out that most of the ongoing cases are to do with events that occurred pre-FY2010.

DLF said its deal for selling DT Cinemas struck a few months ago is still pending closure and approval by the Competition Commission of India (CCI). Once through, this deal with PVR Cinemas could fetch DLF around Rs 500 crore. At the beginning of the current financial year, DLF had said it would be able to do strategic deleveraging transactions of about Rs 2,500 crore. The company maintains that it will be able to meet its target on this front within the current financial year.

There was some good news for DLF too when the CCI recently rejected allegations of anti-competitive business practices against two DLF Group firms, stating there was no prima facie case of violation of competition norms. The complaint pertained to abuse of dominant position by DLF Qutab Enclave Complex Educational Charitable Trust and DLF for leasing plots for developing and running creches and play schools in residential areas.

suchetana@businessworld.in; @suchetanaray
ashish.sinha@businessworld.in; @ashish_BW

(This story was published in BW | Businessworld Issue Dated 11-01-2016)