The strategy adopted by the country’s largest real estate developer, DLF, to focus on ready-to-sell inventory as opposed to pre-launch sales, seem to be working as its sales are on the rise.
The booking numbers in the last three quarters have remained healthy. For instance, during the April-June quarter, DLF reported net bookings of `600 crore, and guided that it will be doing new bookings of anything between Rs 2,000 and Rs 2,500 crore in financial year 2018-2019.
DLF senior executive director (finance) Saurabh Chawla has said the company will be selling only completed units. “We will not be doing any pre-sales. Currently, we have Rs 13,500 crore of completed inventory in our books and as we go forward, we will be selling out of that and it is enough at this particular stage for the next three-four years of sales,” Chawla told a business news channel recently.
Analysts tracking the firm say the change of strategy to sell completed units will likely lead to a period of consolidation, as the current inventory is sold and depleted and new inventory will take four-five years to build.
The company has achieved a near break-even in its cash flow on an operational basis, analysts at Kotak Institutional Equities wrote in a recent report. DLF’s net cash inflow during the quarter was at `940 crore comprising cash inflows of `810 crore from residential sales and `130 crore from DLF’s own annuity portfolio. Operational cash outflow of `970 crore comprised Rs 390 crore towards construction expenses, `220 crore towards finance cost and the balance towards taxes and corporate overheads.
DLF’s strategy is in line with the larger market, where developers are increasingly focusing on selling more from the existing inventory rather than launch new projects.
Developers in cognisance of the weakening demand scenario and mounting unsold inventories, have been concentrating on freeing up capital locked in inventory, at increasingly lower prices and holding off new launches to alleviate mounting financial stress, according to the findings of realty research firm Knight Frank India. This is showing in the sharp depletion in the unsold inventory numbers as well, which saw a decline of a good 17% on a year-on-year basis to 4.97 lakh units for the six months of January-June 2018.
The continued improvement in operations augurs well for DLF’s future cash flows as well and boosted further with expected lower net debt, largely due to the ensuing capital-market transactions, according to analysts.
Chawla said the current net debt on the company’s books is Rs 7,100 crore which should go down to nil in the next few quarters. “We have already guided that we should achieve net debt zero in the development side of our business. So, we will continue to focus over there,” he said.
Given that the focus is on liquidating the current residential inventory in hand, future capital expenditure requirements are limited for DLF, which could be roughly to the tune of Rs 2,000 crore. Most of the expenditure that the company is incurring is for completion of two residential projects in Gurgaon, while in the rest it has received the occupancy certificate.
DLF recorded a sharp 56% y-o-y jump in the consolidated net profit for the three months of April-June 2018. The company’s revenues fell by 26% on a y-o-y basis to Rs 1,507 crore, while the Ebitda (earnings before interest, tax, depreciation and amortisation) during the period was lower by 65% y-o-y to Rs 309 crore.
With the change in the accounting norms and consequently the adoption of IndAS 115, realty players have had to change their revenue recognition methodology. It is now on project completion method (PCM) compared with the earlier adopted percentage of completion method (POCM).