Amid all the gloom, DLF looks best equipped to ride the storm and emerge stronger

Raja Awasthi & Neha Dewan NEW DELHI

 THE current global economic slowdown is taking its toll on several sectors. Realty has been among the worst hit. Companies from the sector listed on the bourses have been badly hit and their massive erosion in wealth is being reflected in their numbers.
    India's largest real estate company by market capitalisation, DLF reported a worrying 69% fall in consolidated net profit to Rs 670.79 cr for the third quarter of FY09 over the corresponding period last year. That's just not the only reason for the company to be in the spotlight for the last few days. The unending speculation on exiting the ambitious International Convention Centre project in Dwarka in the capital, uncertainty over the proposed project at Dankuni in West Bengal and the Rs 60,000-cr Bidadi project in Karnataka are visible signs that the company is facing the brunt of the slowdown.
    The convention centre
project has reached a deadlock due to talks with DDA on renegotiation of the contract. The real estate player has been unable to go ahead with the project due to lack of adequate funds in the face of the economic slump. Similarly the status of the proposed township project at Bidadi is also unclear due to land acquisition problems. Ditto is the case with the project at Dankuni in West Bengal which is in the doldrums due to problems of land acquisition.
    The player has already stopped work on several of its commercial projects. While talking to SundayET, DLF vice-chairman Rajiv Singh outlined the journey starting with a situation of abundance to one of paucity of capital. "The present situation is very different from the boom that we witnessed during the last few years. The real estate industry has moved from a period of abundant capital availability to the times of liquidity crisis. The current economic environment has impacted sentiment at the macro level, and demands both from home buyers and corporate are being affected," he said quite candidly.
    According to company sources, the downturn in the real estate market has prompted the group to sell some of its non-core assets and go in for a process of restructuring its debt in the coming quarters. The company expects to raise Rs 2,000 cr by selling its non-strategic assets such as its power business and land that was intended to be used for retail and commercial projects over the next few quarters.
    On the anvil are plans to raise around Rs 2,000-2,500 cr in DLF Assets – an entity owned by DLF's promoters – by selling stakes to private equity investors. DAL was established to buy and hold completed commercial assets of the listed developer, and it owes around Rs 5,500 cr to DLF for the assets that it has bought from the parent company.
    Industry trackers admit that the phase is difficult and only the big boys could weather it. Sanjay Dutt, CEO of Jones Lang LaSalle Meghraj, thinks all real estate majors are feeling the pinch of the slowdown, and it is not a case where the long-term survival of any entity can be taken as given.
    A rejig in its strategy to move towards affordable housing is one of the initiatives. The company management also hinted at a drop of 15% price cut across projects if the economic downturn was to continue.
    If that is all part of a long-term process, the current financials is certainly an area of concern. The DLF Group recorded consolidated revenues of Rs 1,503 cr for the quarter ended December 31, 2008, as compared to Rs 3,651 cr in the corresponding quarter last fiscal. EBITDA stood at Rs 908 cr as compared to Rs 2,554 cr in the corresponding quarter. The non-annualised EPS for the quarter was at Rs 3.94.
    Commenting on the company's strategy to face this situation of reduced demand and buyer's expectations of fall in prices going forward, DLF's Singh said a cautious approach will be employed coupled with the idea of completing existing projects within defined time-limits. DLF may just have to wait a while before the element of stability comes into play.