Real estate companies may want to reduce debt at the earliest, but the sluggish market continues to pressure cash flows. The country?s largest developer DLF reported an 80% plunge in sales quarter-on-quarter to 13.4 lakh sq ft in the three months to June 2012.
Goldman Sachs said the performance was below expectations as it delayed new launches, leading to lower-than-expected pre-sales. Unitech sold 16% less space sequentially at 15.1 lakh sq ft in the quarter while borrowings were more or less flat.
Indeed, it?s encouraging that the companies did not raise their borrowings significantly: Total debt rose about 1.5% from R38,559 crore at the end of March 2012.
With borrowing costs remaining high, however, the interest bill for eight developers fell by a mere 1.6% to R903.3 crore.
Most of these borrowings were accumulated to buy land banks at the peak of the economic cycle in 2007-08.
Bangalore-based Sobha Developers? net debt rose 4% during the last quarter and this could go up in the current quarter as well. However, there are expectations of an increase in sales collections, a CLSA report said. Sobha?s April-June sales at at 8.4 lakh sq ft were 2.3% below January-March sales.
As sales slow, several developers have been looking to sell non-core assets to pare debt but few have met with success. DLF sold assets worth R369 crore in the first quarter, more than double the amount in the three months to March, 2012. However, much of the money was used to bridge negative operating surplus, observes domestic broking firm Motilal Oswal.
Godrej Properties? quarter-on-quarter sales fell 2.6% to 7.5 lakh sq ft in the June quarter. The company saw an uptick in leases and sales in its old commercial projects, which have been a drag on its operating margins in the last few quarters. ?Traction in commercial sales would also help in unleashing the significant capital locked in these projects, triggering debt reduction. However, high leverage, owing to several acquisitions, remains an overhang,? a Motilal Oswal report said.
Among companies that bucked the trend was Prestige Estates, which saw stable debt levels amid a sequential 54% increase in sales at 20 lakh sq ft during the quarter. The company is understood to have lined up launches for around 60-80 lakh sq ft, mostly in Bangalore.
Mumbai-based Housing Development & Infrastructure is also on track to reduce its debt and plans to bring it down to R3,000 crore in one year, said vice-president (finance) Hariprakash Pandey.
However, for many others, new project launches will remain a challenge. Delhi-based Anant Raj Industries has no significant launches planned over the next two years and will be dependent on sales from the Golf Course Road project to reduce debt by R400-500 crore over the next 12-18 months.