DLF's building contracts only for big firms

India’s largest real estate developer by market capitalisation, DLF Ltd, is changing its strategy on construction contracts. The company has decided to award contracts to major construction companies instead of mid-sized ones, to deal with the problem of labour shortage.

Blaming this shortage for delay in production, Saurabh Chawla, executive director, said in a conference call, “Big construction companies have a more end-to-end responsibility; therefore, they will be able to harness labour better.”

DLF is in the process of awarding big turnkey contracts for new projects. Sources said DLF was set to launch the second phase of its super-luxury residential project, The Magnolia, located inside the DLF Golf Course, Gurgaon. It would start in the fourth quarter of 2011-12. Each Magnolia apartment would be 5,825-10,000 sq ft, with a minimum price tag of Rs 5 crore.

DLF had formed a 50:50 joint venture with Laing O’Rourke, a UK-based construction major, in February 2006 with an investment of Rs 500 crore each. The JV was formed to undertake construction of all DLF projects. It fell apart as Laing wanted to expand itself and bid for bigger projects like airport and highways. DLF had finally bought out the JV in 2009 for close to Rs 100 crore.

DLF’s gross leasing in the first half of 2011-12 was slow, at 1.63 million sq ft versus 3.18 million sq ft last year. The company attributed that to a customer cancellation in Chennai. However, its total annuity income was Rs 935 crore versus Rs 775 crore in the first half last year. Gross rental income was also high at Rs 757 crore in the first half this year, as against Rs 610 crore in the corresponding period last year.

Net debt was Rs 22,519 crore, higher by Rs 1,000 crore during the second quarter. It aims to cut debt to Rs 19,000-19,500 crore by the end of 2011-12 through the sale of non-core assets. For the next round of debt cut, estimated at Rs 4,000 crore, Chawla said the broad list of the non-core was ready. “It will have two-three big ticket sales. It is in an early stage of discussion, so we will not be able to give details.”

Analysts say it may take another two years for a second round of monetisation to fructify.

DLF plans to continue with its strategy of selling plotted development to deal with inflationary pressures. It plans to launch seven-eight million sq ft in the second half of the financial year. It will launch 2.5 million sq ft of plotted projects in Chandigarh and Lucknow in the third quarter, worth Rs 1,000 crore and Rs 500 crore, respectively.