DLF targets Rs 5,500 crore from asset sale

DLF targets Rs 5,500 crore from asset sale
Sunday Business Standard, May 3, 3009, Page 1

Raghavendra Kamath / Mumbai

DLF Ltd, the country’s largest real estate developer, plans to raise Rs 5,500 crore through the sale of non-core assets such as power units and hotels to help it reduce its debt. In addition, it is banking on another Rs 2,000 crore of additional inflows from group company DLF Assets (DAL), the company said in a presentation to analysts.

The move follows 33 per cent growth in DLF’s gross debt to Rs 16,358 crore at the end of March, 2009 from Rs 12,277.08 crore an year ago. In addition, during the last financial year, the company’s revenues fell 28 per cent to Rs 10,541 crore as home-buyers deferred purchases and the company offered discounts to lure buyers into many projects. As a result, the company’s revenues were hit to the tune of Rs 688 crore, it said.

DLF’s net profit fell 41 per cent during 2008-09 to Rs 4,629 crore, while there was a 93 per cent decline in fourth quarter profits to Rs 159 crore. Loss from non-core businesses such as insurance, hotels and power was estimated at Rs 163 crore during the year.

The plan to sell parts of the non-core business was aimed at lowering the company’s net debt burden by 53.73 per cent to Rs 6,458 crore by March 2010, as against Rs 13,958 at the end of March this year, DLF said in the presentation. The net debt is arrived at after excluding the cash-in-hand, estimated at Rs 1,198 crore at the end of March 2009, and equity shown as debt and joint venture company debt, which together amounted to Rs 1,202 crore.

Out of Rs 5,500 crore, the sale of its wind power business and three land parcels are expected to generate around Rs 2,100 crore, and the remaining amount is expected to come from the sale of other assets such as hotels, DLF Vice-chairman Rajiv Singh said in an analyst call today.

“We are looking to sell those assets which do not significantly add to our bottom line and alter our business plans in the next three years. There is a clear visibility of Rs 3,500 crore (income) to us through this and (the remaining) Rs 2,000 crore is in various stages of negotiation and identification,” Singh added.

The company said that it had met all debt-repayment commitments and has made long-term arrangements for the remaining loans. It pointed out that new loans to the tune of Rs 2,500 crore had been sanctioned and were under disbursal. Of the Rs 3,591 crore debt due for payment during the current financial year, DLF paid Rs 723 crore in April.

Mounting debt and tight liquidity conditions have made real estate companies such as Unitech sell assets to generate funds. Unitech has sold a majority stake in its telecom venture Unitech Wireless to Norway’s Telenor and also sold off its Gurgaon hotel. It is in the process of selling its property in Saket in Delhi.

Apart from selling non-core businesses, DLF is also pulling out of unviable real estate projects such as those in Bidadi in Karnataka and Dankuni in West Bengal. Singh told analysts that the company was focusing on launching mid-income housing projects to beat the slowdown in the property sector. DLF is planning to launch 8-9 million square feet of city-centre projects in Chennai, Kochi, Delhi and Gurgaon and around 5 to 8 million square feet of mid-income housing projects in the National Capital Region (Delhi’s suburbs) and southern Indian cities, he added.

DLF is also looking at launching office and mall projects in Mumbai, Chennai, Gurgaon in the current financial year to generate more revenue. The company is looking at capital expenditure of Rs 500 crore this financial year and Rs 1,000 crore in the next year, Singh said.

“We hope to restart our commercial projects aggressively this year and restore the company back to non-DAL levels. We want to make up for the stress and loss with limited number of projects,” Singh said.

DLF wraps up buyback ahead of schedule

DLF wraps up buyback ahead of schedule
The Hindu Business Line, May 3, 2009, Page 1

Our Bureau, Mumbai

Real estate major DLF Ltd announced on Saturday the closure of its buyback programme, two months ahead of schedule.

The programme fetched only a little over 10 per cent of the upper limit of shares that could be tendered.

The closures were announced after the company acquired the minimum requisite number of shares for an aggregate amount of Rs 140.69 crore.

The company had earlier planned to buy back a maximum of 2.2 crore shares equivalent to 9.80 per cent of its total paid up capital for a sum not exceeding Rs 1,100 crore.

As per the buyback plan announced last year in July, DLF had offered to buy back its shares of face value Rs 2 each at a price not exceeding Rs 600 a share.

The company’s share price has been quoting in the range of Rs 300 to Rs 125 between October 17 and April 29 on the stock exchanges since the commencement of the buyback.

On Thursday, DLF shares closed with a gain of 2.71 per cent at Rs 230.90 on the BSE.

The decision for early closure was taken by the DLF board on April 30, DLF said in a filing to the BSE.

“The company, having purchased the requisite minimum number (55 lakh shares) of equity shares, has decided to close the buyback with effect from May 6, 2009,” DLF said.

“As on May 1, 2009, the company has bought back 76,38,567 equity shares for an aggregate amount of Rs 140.69 crore.

“No order for the buyback shall be placed after May 4, 2009,” the company added.

DLF promoter and promoter group held 88.55 per cent stake in the company, according to the shareholding pattern reported to the BSE at the close of the March 31, 2009.

'Cement capacity to increase by 50 MT this year'

'Cement capacity to increase by 50 MT this year'
Business Standard, May 2, 2009, Page 10

Q&A: H M Bangur, President, CMA
Ajay Modi / New Delhi

The cement industry appears to be emerging from the lean patch last year. Capacity utilisation is improving, dispatches are picking up and companies have raised prices this month. However, the industry may soon find itself in a difficult situation with the addition of 50 million tonnes (MT) capacity in the current financial year, leading to an oversupply. H M Bangur, president of the Cement Manufacturers Association (CMA) and managing director of Shree Cement, spoke to Ajay Modi on the prospects. Edited excerpts:

There is a general perception that cement prices continue to remain high. Most companies took a price increase earlier this month. Is this likely to result in higher profits?

Prices are certainly higher than last year. But the profitability of companies is down by an average 10 per cent, since the cost of inputs like fuel and freight continues to increase.

What kind of capacity addition is expected in 2009-10? What would be the country’s total capacity by March 2010?

The existing capacity is about 218 million tonnes. The industry is expected to add around 50 million tonnes this year, taking the total capacity to 268 million tonnes by the end of this financial year.

The new capacities are expected to create an oversupply, since cement consumption growth is likely to fall in tune with the GDP growth rate. How would the industry cope with it?

The market will face an oversupply situation from September onwards, when the new capacities would get stabilised. While domestic supply will outpace the demand, even export is losing attraction. In such a situation, a lot would depend on the new government and its initiatives related to infrastructure projects.

How is the industry going to manage this oversupply?

Individual companies need to act keeping in mind their strengths and weaknesses. However, the situation would make it difficult for new players to enter the market.

Is the industry trying to find ways to boost cement consumption?

The industry is trying to project the benefits of cement concrete roads over the bitumen road. Various researches have established that the initial cost of a cement concrete road today is cheaper than a bitumen road. Plus, the maintenance cost on cement roads is low as well.

Given the cement import from certain neighbouring countries, is the industry seeking protection from the government in terms of safeguard duty, etc?

No. The industry is globally competitive and it does not require any protection. However, a level playing field should be ensured.

Real Estate Intelligence Report, Friday, May 1, 2009

9.25% OR LESS FOR UP TO RS 30 LAKH

HOUSING LOANS TO FIT LOWER RATES WITH SLAB REMAKE
The Economic Times, May 1, 2009, Page 1

9.25% OR LESS FOR UP TO RS 30 LAKH

Anto Antony & Deepsikha Sikarwar NEW DELHI

STATE-RUN banks will now charge 9.25% or less interest rate for the first five years on home loans up to Rs 30 lakh, in a bid to revive housing demand. Banks are working to raise the cap for availing the special offer to Rs 30 lakh by tweaking their loan slabs and keeping the offer open for a longer period, executives said. At present, public sector banks offer a special rate of 9.25% for the first five years only on loans up to Rs 20 lakh, under a special scheme open till June 30, 2009.

Corporation Bank, for instance, would do away with two concession slabs of up to Rs 5 lakh and Rs 5-20 lakh and replace them with a new slab of up to Rs 30 lakh.

“We are working on restructuring slabs for home loans to bring down the lowest slab to Rs 30 lakh. We find that 75% of the demand for home loans was in this segment,” chairman and managing director JM Garg said. He said the interest rate for the first five years will be capped at 9.25% or lower. “There is further room for interest rate cuts and our next asset liability committee will take a call,” Mr Garg added.

IDBI Bank chief financial officer RK Bansal too confirmed that the bank was in advanced discussions on restructuring slabs while other public sector banks such as Canara Bank have already initiated the exercise.

The move by state-run banks is expected to revive demand for new homes, which has been tottering since last September. Indeed, the December quarter saw an almost negligible growth in housing loan offtake compared to the previous quarter.

The demand for lower-priced houses improved in the March quarter, with developers slashing prices and banks coming up with special schemes.

Inflation inches up to 0.56%

Inflation inches up to 0.56%
The Economic Times, May 1, 2009, Page 11

Our Bureau NEW DELHI

INFLATION edged up to a seven-week high of 0.56% for the week to April 18, defying expectations of a drop towards zero, with data once again highlighting the persistent problem of stubbornly high food prices amid rigidities in the farm sector.

Economists said this upward movement in the inflation rate is an “unexpected surprise”, and forecasted that rising prices of food items will become a major concern in the months to come. Although headline inflation, as measured by the wholesale price index, has come down to near-zero levels from a peak of near 13% last August, annual inflation rates for key food items such as sugar, vegetables, cereals and pulses remain in double digits. Overall food price inflation, which includes these items and more, rose to 7.39% for the week to April 18 from 6.85% the week before, but off the 10-year high of 11.63% seen in early January.

The rising food index reflects a deeper and longerterm problem in the agriculture sector, said HDFC Bank chief economist Abheek Barua, adding that if the inflation in food items is not addressed now, it could spill over to prices of manufacturing items. Analysts expect food prices to rise further in the short-to-medium term, lifted by the increase in rates at which government agencies buy food grains, a projected decline in global cereal production, and low credit availability to the farm sector.

Policymakers say lowering minimum support prices was not an option for the ruling coalition or for the new government that will be voted to power, as it will lead to resentment among farmers and could trigger social unrest.

Experts say soaring food prices could be tamed by releasing the government’s buffer stock of grains and by resorting to import of items like sugar.

“We have had four years of reasonably good rainfall and hence good growth in agriculture. Our silos are overflowing. So, this year even if rains deviate a little bit from the normal in terms of its timeliness and distribution, India should be able to tide over this eventuality without much problem,” said Ashok Gulati, director in Asia for the International Food Policy Research Institute.

Minerals and metals became dearer during the week, suggesting a revival in demand for industrial inputs and making manufactured items costlier for the eighth straight week. But analysts said a convincing trend in this area would emerge only over the coming weeks.

WPI inflation is nevertheless expected to hit sub-zero levels in the coming weeks because of the high base effect.

DLF Q4 net falls 93%

DLF Q4 net falls 93%
The Financial Express, May 1, 2009, Page 1

Corporate Bureau, New Delhi

India's largest real estate company, DLF Ltd, on Thursday posted a staggering 92.69% fall in net profit at Rs 159.05 crore for the quarter ended March 31, 2009 against Rs 2,176.82 crore for the corresponding quarter of the previous year.

In a late night filing of its consolidated results with the stock exchanges, the company also announced that revenues had plunged 69% at Rs 1,351 crore for Q4 FY09, against Rs 4,372 crore for Q4 FY08.

The company’s annual performance wasn’t much better, either. Net profit for the year fell by 41% at Rs 4,629 crore, from Rs 7,812 crore in 2007-08. Revenues also plummeted by 28% at Rs 10,541 crore, from the previous year’s Rs 14,684 crore.

Commenting on the results, DLF Ltd vice-chairman Rajiv Singh said, “The real estate sector bore the brunt of instability and loss of confidence in the local economic environment for the last six months.”

Indeed, the real estate sector has been one of the biggest casualties of the ongoing liquidity squeeze and the country’s biggest realtor has also taken a massive jolt. It had a huge short-term debt component of Rs 6,000 crore with a maturity of less than a year, out of which debt worth Rs 3,000 crore was restructured into a long-term debt mainly by securitising cash flows. The quality of the debt portfolio improved substantially, with an average maturity in excess of three years. It’s total debt now stands at Rs 15,000 crore.

The company recently slashed property prices by 10-18% in order to increase sales and increase cash flows. The company, like its smaller peers, halted its proposed high-end housing projects and opted for more affordable middle-class housing projects. It sold 450 units in Q4 09 across India in this affordable housing segment.

“In line with our earlier projections, the real estate sector should start witnessing recovery from third quarter onwards. In the interim, we would keep a close watch on the market conditions, continue to explore launches of attractively priced residential apartments selectively across the country and respond with appropriate product categories as per customer’s demands,” added Singh.

In order to buoy investor confidence under its buy-back programme, the company has bought back 76,23,567 equity shares up to March 31, 2009 at a price (excluding transaction cost) of Rs 140.34 crore. Of these, 76,18,567 equity shares were extinguished up to March 31, 2009 DLF stocks closed at Rs 230.90 down 2.71% at BSE on Wednesday (markets were closed on Thursday).

India Inc gives a glimmer of hope

India Inc gives a glimmer of hope
Business Standard, May 1, 2009, Section II, Page 10

B G Shirsat / Mumbai

Though the net profit of the 514 companies that have declared results so far has fallen by 16.3%, it is far less than the 32.7% plunge they reported in Q3.

The performance of 514 companies, which have declared their fourth quarter results so far, indicates that cement, construction, fertiliser, personal care, power, telecom and two-wheeler sectors would do well in the final count. An in-depth analysis of these results by Business Standard Research Bureau has also found that software services and pharmaceutical sectors are poised to post a modest growth in sales and profit, while trading, metals, automobiles (heavy) and engineering sectors are expected to fair badly in the quarter ended March 2009.

Sales and margin performances of the 514 firms have been better than expected, though a clear picture would emerge once more results came in. These firms have reported a 0.4 per cent decline in sales, while their net profit has gone down by 16.3 per cent.

The decline in sales of the sample companies has been caused by private sector petrochemical and oil & gas giant Reliance Industries (RIL), which has reported a 24 per cent drop in sales due to subdued gross refining margins. If RIL is taken out, the average sales of the remaining sample firms have increased by 5.5 per cent. Though it is still too early to project any growth rate for the fourth quarter, initial trends suggest that corporate earnings are likely to be better than the third quarter.

On the operating margin front, India Inc has done better quarter-on-quarter (q-o-q) but faltered year on year (y-o-y). While the operating margin of the sample companies has shot up by 256 basis points (bps) q-o-q, the same has fallen by 190 bps y-o-y. This jump in operating margin points to easing of commodity and input prices as well as effective cost management by the corporate sector. A noteworthy point here is that the fourth quarter operating margin of the 514 companies is higher compared to the preceding three quarters.

During the third quarter ended December 2008, the same sample of companies had posted a 32.7 per cent decline in net profit, despite a sales growth of 14.2 per cent. The sales of the sample companies grew by around 30 per cent each in the first two quarters, but the net profit rose by only 5.8 per cent in the first quarter and 0.8 in the second.

The decline in sales growth in the fourth quarter means deflation, but corporate houses appear to be managing it fairly well by controlling the cost of production. Though sales growth has plummeted by 0.4 per cent compared to a growth rate of over 27.2 per cent a year ago, the total cost of production has gone up by 1.9 per cent compared to a 26.7 per cent increase during the same quarter last year.

A major saving for India Inc has come from the cost of raw material (RM), which declined by 17.5 per cent. In the first two quarters, the RM cost was 1,000-1,200 bps higher than the rate of sales growth. Also, the raw material, which accounted for 50 per cent of the production cost in the first two quarters, made up for 38 per cent in the third and 36.6 per cent in the fourth quarter. This was mainly because the corporate sector went for production cut due to demand recession.

However, the performance of the sample companies, excluding 95 loss-making firms, looks better in terms of profitability. However, excluding the loss-makers, the net profit of the remaining sample declined 4.9 per cent compared to 25 per cent decline in the third quarter. The operating margin looks healthy at 18.8 per cent, down by 19 bps y-o-y and 327 bps q-o-q. Interestingly, the fourth quarter operating margin of the non-loss making companies was the highest in the last eight quarters.

There was no surprise from software services companies, which have posted a single-digit growth in quarterly revenues, probably the first time in history. However, their net profit rose by 18 per cent, thanks to a 250 bps improvement in y-o-y margins due a cut-down in cost of salaries and wages and depreciation of the rupee against the US dollar. If software companies are excluded from the total sample, the decline in sales of the remaining firms stands marginally higher at 2.8 per cent, but their net profit witnesses a sharp decline at 17.4 per cent. Among frontline software companies, Infosys Technologies outperformed TCS and Wipro with robust growth in sales and profit. TCS and Wipro have reported a fall in net profit due to slower revenue growth.

The cement companies have given a pleasant surprise in the fourth quarter with a 17.5 per cent rise in sales and a robust 25 per cent growth in net profit. These firms have been benefited by the cost of production which was lower by 80 bps compared to the sales growth rate. But in the first three quarters, the production cost was 900-1,000 bps higher than the sales growth rate. Therefore, the q-o-q margin of the cement companies rose sharply by 575 bps, though the same was lower by 50 bps y-o-y. Among cement companies, Shree Cement recorded a robust 473 per cent rise in net profit, while ACC reported a decent double-digit growth in sales and net profit.

As was expected, two wireless services providers have done well with a strong revenue growth, but faltered on profitability due to a decline in average revenue per user (ARPU). Bharti Airtel, the leader, reported a 30.4 per cent growth in revenues, but its net profit grew by 7.8 per cent. Idea Cellular recorded a robust 47.9 per cent growth in revenue, but its net profit declined by 0.88 per cent. The Mahanagar Telephone Nigam Limited (MTNL), the basic telephone, mobile telephone and Internet service provider for Delhi, Mumbai, New Mumbai and Thane, suffered a setback as it posted a net loss of Rs 83.8 crore on account of a 7.5 per cent decline in quarterly revenue.

Puravankara Q4 net down 80%

Puravankara Q4 net down 80%
Business Standard, May 1, 2009, Page 5

Puravankara Projects Limited, a Bangalore-based real estate developer, has posted 80 per cent drop in its fourth quarter net profit to Rs 14.5 crore from Rs 72.7 crore for the corresponding quarter of last fiscal. Net sales were down 56 per cent to Rs 67.9 crore for quarter ending March 31, 2009.

End-users win the race, finally

End-users win the race, finally
ET Realty, May 1, 2009, Page 24

With investors disappearing from the market, end-users can now enjoy tailor made projects made especially for them. ET Realty explores

FOCAL POINT

Now, as investors have disappeared from the marketplace, endusers are the main customers. This has forced developers to focus on the need of endusers The recent slowdown in the sector has given a push towards affordable and low-cost housing projects. Many developers are focussing on smaller square footage houses now

Prabhakar Sinha

The present downturn has resulted in a boon for endusers. Not only have the prices of apartments declined drastically, but today, end-users can also bargain hard with developers to get a better location and amenities. Earlier, when investors used to constitute the major portion of the customer base, end-users could not influence developers to meet their requirements, during the construction of the building. Till six months ago, real estate was attracting huge investment from investors, who bought properties to sell them later for a profit. Investors are hardly interested in the quality of construction and other amenities, which are necessary for those who plan to live in those buildings.

But, now, as investors have disappeared from the marketplace, endusers are the main customers. This has forced developers to focus on the need of endusers. However, endusers in the present market must ensure the genuineness of a builder before buying from his projects. Most of the developers are overstretched and are under huge debt. Therefore, the advance money they take might be diverted to pay off the debt they have already taken. This will delay the project.

The global realty consultant Cushman and Wakefield (C&W) says the present downturn will result in the consumer gaining trust, which was lost in the developer community earlier with homes being made for investors. Houses will now be designed keeping endusers' budget in mind.

Developers are also adopting regional strategies to account for local conditions. In Haryana, developers are launching independent floors, especially after the policy change by the state government, where independent floors can be registered. This will lead to reduction in prices with independent floors now available in the range of Rs 20 lakh to Rs 50 lakh, which has seen a strong absorption.

The recent slowdown in the sector has given a push towards affordable and low-cost housing projects. With government becoming proactive in formulating policies to this effect, viz, by reserving certain homes for BPL families, reducing stamp duty and registration costs across various states, reservation of economically weaker section (EWS) homes in townships (generally 10% reservation), etc, it has been a boon for endusers, says C&W.

Year-2009 has seen the rise of affordable housing. Many developers are starting to focus on smaller square footage houses in order to bring down the ticket size of houses so as to bring them under affordable category for endusers. This move will additionally reap the advantage of the differential interest rates for loans under 20 lakh for endusers. The public sector banks are giving loan up to Rs 20 lakh at 9.25% as against 10.25% for more than Rs 20 lakh for 20 years. The change in the interest rate by one percentage point from 10.25% to 9.25% leads to reduction in the EMI by Rs 1,316 from Rs 19,633 to Rs 18,317 on Rs 20 lakh loan for 20 years.

However, despite all these good offers, endusers are not buying apartments. As the general expectation is that the sector and economy will witness a revival from the third quarter of 2009, prices will go up in due course. To catch those rising prices, some developers are considering undertaking projects without selling them to endusers at present and mobilising money for construction. And, this is a conscious strategy.