The debt overhang on Indian realtors continues to weigh down the financial performance of developers who are resorting to land sale mantra to keep their cash registers ringing. Drop in revenue generation from core operations and increase in interest cost outgo have hit the results for the third quarter of realty biggies including DLF, HDIL, Unitech, Oberoi Realty and Orbit Corporation.

The cumulative consolidate revenues of these five firms was down over 20 per cent in the third quarter ended December 31, 2011 over the same period the previous year while net profit was down around 40 per cent over Q3 FY’11, according to a VCCircle analysis.

Take Mumbai-based realtor HDIL, for instance. The firm has seen as much as 90 per cent of the cash flows coming from floor space index (FSI) sales worth Rs 443 crore under its subsidiary Guru Ashish Constructions. According to Hari Prakash Pandey, vice president (Finance) of HDIL, the company has generated mere Rs 50-75 crore through residential sales in the last quarter.

Sarang Wadhawan, vice chairman and managing director of HDIL, said, “We will continue to focus on reducing our debt considerably in the coming quarters through monetization of FSI sales and internal accruals.”

A senior realty consultant who did not wish to be identified, says, “HDIL is looking to sell 10 million sq ft land parcel in Virar, FSI sale worth Rs 150 crore to Ekta developers. It has put its commercial part of the Metropolis project in Andheri on sale and also the IT–SEZ in Kochi on block.”

At the end of Q3FY12, HDIL had debt of Rs 4,242.93 crore on its books and debt to equity ratio of 0.42. Its profit after tax fell over 31 per cent to Rs 155.79 crore in Q3 FY’12 as compared to Rs 228.19 crore for the same period last year.

Its peer from the South Mumbai, Orbit Corporation, has also come up with the strategy to divest stake to private equity players in three of its marquee projects including Kilachand House, a residential project at Napean Sea Road and Santacruz to monetise its previous investments.

According to sources, Orbit plans to raise anywhere between Rs 500-700 crore through asset sale. It is also planning to rope in an international developer for its projects.  At the end of Q3FY12, its net worth stood at Rs 1,054 crore with debt to equity ratio of 0.8.

These realtors have indicated that going forward they expect the markets to improve in Mumbai. Their peers in North India would also hope they same, having fared none the better.

India’s largest realtor according to market capitalisation, DLF Ltd, managed to monetise assets worth Rs 1,200 crore but its net debt came down just marginally to Rs 22,600 crore, a drop of mere Rs 160 crore. Its gross debt stands at Rs 25,000 crore. Its interest cost outgo at the end of the third quarter of this financial year stood at a whopping Rs 900 crore, highest outgo for any quarter in this year.

On the one hand where it is selling assets, DLF is also investing in land replenishment. It spent close to Rs 400 crore in acquiring land in Chandigarh and Gurgaon.

DLF had earlier indicated that it would close the sale of luxury hotel chain Aman Resort by early 2012, which may not happen.

According to a research report on DLF, Edelweiss analysts Ashiesh Aggarwal and Adhidev Chattopadhyay, have said, “Operating cash flow remains inadequate to service interest payments – Rs 21,800 crore of interest outgo for 9MFY12 vs operating cash flow of Rs 15,100 crore.  DLF cites quarterly land purchases or capex of Rs 300-400 crore towards new phases of upcoming launches as the reason for the mismatch. In this context, it becomes imperative to close big-ticket asset sales to improve cash flows.”

According to a realty consultant who had pitched to DLF for the mandate to sell the Bombay Mills property at Lower Parel in Mumbai, “As Aman Resort sale has now got delayed they are not passing any mandate for Mumbai assets. Most of the developers from Mumbai have already met them but they are not offering anything close to what DLF wants. On the wind energy asset, during the downturn it had plans to sell the same for Rs 1,000 crore but later they backtracked as it provides tax concession and no one was willing to pay that amount. This time around bids are yet to come for the same.”

As some developers are finding it difficult to find buyers for the hordes of lands it has in its pockets, the north based Ansal Properties and Infrastructure Limited (Ansal API) has ended up posting a loss for the first time. The company attributes the loss towards revision of its estimates for sales in its Lucknow township project which it had earlier booked under percentage completion method and downsizing of its Greater Noida land parcel from 47 acres to 13 acres, which caused a hit of Rs 8 crore.

Dinesh Gupta, COO of Ansal API said, “We have already earmarked 2-3 asset sale for which we are under confidentiality agreement with our partners but we hope to raise around Rs 300-350 crore through the same. We hope to close the transaction by the end of the year. Our operations are also on track and we have sold 19 million ft in the last ten months.” Ansal API has a debt burden of Rs 1,500 crore in its books.

The country’s third largest property developer, Unitech’s net profit halved for Q3FY12 at Rs 55.22 crore as compared to Rs 111.36 crore in the corresponding quarter last year.  Its consolidated net debt stood at Rs 5,190.26 crore at the end of December quarter.

Ajay Chandra, managing director, Unitech, said, “The company has been able to achieve Rs 921 crore of sale bookings during the quarter. Business environment remained challenging during the quarter affecting company’s ability to scale up the construction activity. Company’s immediate priority is to increase the construction activity at its project sites and its net debt to equity 0.43 is well within the targeted level of 0.50.”

Most realtors are hoping that softening inflation will prompt RBI to cut interest rates sooner that would provide a boost to residential property sales and also send positive business undercurrent to positively impact commercial property business.

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