DLF breaks piggy bank to reduce debt

DLF's Rs 20000 cr debt continues to haunt shareholders

In one more incident of non-core asset sale, the company has sold its 74% stake in its insurance joint venture with Pramerica Insurance JV to Dewan Housing Finance Corporation. Though the company has not divulged the financial details of the deal, analysts believe the company will raise around Rs 190-200 crore from the deal. 

Earlier the company sold its wind power business in Karnataka for Rs 29.5 crore and before that in a comparatively larger deal it had sold its wind power turbine business in Gujarat for Rs 325.38 crore. The Gujarat unit was a 150 MW wind power generating unit which went for a price of just over Rs 2 crore per MW. 
 

Now DLF has a debt of around Rs 20,000 crore in its books. In FY13, the company paid interest of Rs 2,314 crore on its loans. The three recent sales are barely enough to repay the interest component, forget reducing its debt from the balance sheet. 

On account of the slowdown and aggressive growth in its earlier years, the company has piled on a mountain of debt. With sales slowing down, the company is barely able to post profits. In the March 2013 quarter, on an operating profit of Rs 539.7 crore (consolidated), the company paid interest of Rs 588.17 crore. Just because of an other income component of Rs 93.2 crore was the company able to keep its head above water. 
 

DLF’s much touted Aman Resorts sale back to its original buyer has been delayed and rumours are that it might be cancelled. The sale was expected to bring in around Rs 1,600 crore to the company. Selling pieces of the company is just not serving any purpose. 
 

The company has managed to ‘convince’ the analyst community that it will reduce its debt by Rs 5,000 crore over the next 18 to 24 months. At the time of its first six month results in FY13, the company had announced that the worst was over. Without checking on the numbers and environment, almost all analysts parroted the company’s word and increased their target price. DLF ended up posting half the profits it did in the first half. Despite analysts continuing with the ‘Buy’ recommendation, the stock has fallen since the time the company said its worst is over. 
 

While analyst response to the current sale is ‘it’s a step in the right direction’, these baby steps really do not count. The writing is clearly on the wall, DLF is sinking. It is time for a surgical cut by way of sale of large parcels of land rather than treating the debt wound by Band-Aids.