DLF reduced debt by Rs 1,870 cr

The company's been selling its non-core businesses since last couple of years to focus on core real estate business, cut huge debt

A day after missing analysts’ estimates for the third quarter earnings by a wide margin, DLF hosted a day out for them at their premises, moving away from the traditional conference call, which it has been doing for the past five years since it got listed.

The estimates went wrong primarily because of the new accounting norms adopted by the company, a potential loss from the Aman Hotels sell-off and increase in projects’ cost due to inflation, among other factors, analysts said after analysing the numbers.

According to sources, analysts and representatives from brokerage firms visited the DLF facilities in Delhi and Gurgaon on Friday and met DLF’s top management, who has not been taking any questions on the phone since the results were announced yesterday.

The company posted a 103 per cent increase in its net profit at Rs 285 crore for the third quarter, compared to the same period in the previous year. It is after nine straight quarters that India’s largest realty player’s profit is showing signs of improvement. The total income fell 4.3 per cent to Rs 2,291 crore during the quarter under review. According to various analysts estimates, the company was expected to report net profit in the range of Rs 640-875 crore. Bloomberg consensus had pegged that figure at Rs 458 crore.

“Operating profit of DLF suffered due to delay in project deliveries and high fixed costs. In the third quarter, the company also accounted for the increase in raw material costs for ongoing projects,” said Anubhav Gupta of brokerage firm Kim Eng.

The company’s net debt reduced by 20 per cent, following the sale of hotel business and Mumbai land, and we expect debt to further reduce by five per cent following the sale of the windmill business, which is expected in first quarter of FY14, according to Kim Eng.

Gupta added the profit in FY14 would recover on the back of improvement in property demand following reduction in interest rates.

During the quarter, the company also reduced its debt by Rs 1,870 crore and plans to take it to a level of Rs 19,000 crore by the end of FY13 after completion of sale of non-core assets, according to an analysts’ presentation on the DLF website. The net debt stood at Rs 21,350 crore as on January 1.

In the presentation, the company said the operation Ebidta (earnings before interest, depreciation, taxes and amortisation) was strained because of various factors including true-up of final cost of completion of projects in final stages, increase in cost of some projects on account of inflation and the new launch, Sky Court, is not recognised for profit and loss (P&L) under new accounting guidelines. The company has also provisioned for potential loss of Aman Sales transaction.

Param Desai, analyst at Nirmal Bang Institutional Equities, in a note said, said: "DLF’s 3QFY13 Ebidta was significantly below our and Bloomberg’s consensus estimates on account of nil revenue booking from its recently launched project SkyCourt (Rs 200 crore contribution expected to profit before tax) in adherence to new accounting norms and one-off items such as provision for loss (non-cash) on recent sale of Aman Resorts and wind power business (Rs 150 crore) and cost adjustment on account of inflationary pressure not provided for in earlier quarters (Rs 560 crore)."

Put together, the impact of these three factors amounts to Rs 910 crore. Desai, who was expecting DLF to report an Ebidta of Rs 821.5 crore and net profit of Rs 761.2 crore on revenues of Rs 2,162 crore, said: "Adjusting for these transactions, the performance was broadly in line with our expectations."

Arun Aggarwal, analyst, Religare Institutional Research, shares a similar view. He said the company’s profit after tax of Rs 250 crore was “below our estimates by 59 per cent because of new revenue recognition methodology, one-time cost of Rs 560 crore for final cost adjustments in projects nearing completion and other factors.”