Slow Work in Progress

Despite its restructuring efforts, DLF is struggling because of poor cash flow  

Vishal Koul

The real estate sector has long been reeling due to a slowdown and oversupply. So much so, developers have been continuously selling their landholding to bring down debt. Reports suggest that the promoters of DLF would be infusing Rs.10,000 crore in the company by selling a 40% stake in the rental arm — DLF Cyber City Developers Limited (DCCD) — for an estimated Rs.12,000 crore.

In a separate transaction, the Gurgaon-based company will also raise about Rs.3,000 crore from institutional investors to ensure that the promoters’ stake remains within the 25% minimum public shareholding norm. All this is not new, as DLF has been trying to bring down its debt and regain investor confidence for the past five years, with very little success.

Once a darling of the bourses, the reversal in DLF’s fortune has been dramatic. In June 2007, its Rs.9,187 crore public issue was oversubscribed 3.47x, with investors vying to get their hands on the developer’s shares. With much fanfare, the company debuted with a market cap of Rs.97,183 crore. Since then, interest has dimmed. In August, its average deliverable volume on the NSE was 17.02%. Developers such as Kolte-Patil (59.77%), Godrej Properties (61.3%) and Oberoi Realty (68.55%) clearly, have found more favour with investors. DLF’s market cap has nose-dived 60% and is currently at Rs.29,559 crore. 

Debt trap
The company’s highly leveraged balance sheet — its gross debt rose 120% during FY08-16 — has been the main culprit behind its decline. It’s not that the management is unaware about it. Over FY12-16, DLF raised Rs.13,000 crore from divestment and QIP proceeds to reduce the debt. (See: Excess baggage) But the company’s net debt to equity ratio remained sticky, improving just marginally from 0.89x to 0.81x. (See: Sticky problem)

The de-leveraging plans failed because cash flows from its residential arm, DevCo remained negative amid weak market conditions. Burdened with a high interest outgo, the company has not been able to generate positive free cash flows. Despite the de-leveraging efforts, free cash flows, after accounting for interest outgo, has been negative to the tune of Rs.2,200 crore. 


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