India’s top listed real estate developer DLF Ltd missed analysts’ estimates with a 19 percent fall in quarterly profit due to cost rises and warned the central bank’s actions to tighten liquidity will likely temper sector growth this fiscal year.
DLF also raised its target to raise funds from non-core asset divestments to 100 billion rupees ($2.2 billion) from 45 billion earlier, as it looks to reduce debt.
It plans to divest assets worth 60 billion to 70 billion rupees over the next two to three years, the company said in an analyst presentation.
The weak results and subdued outlook pushed the stock down 5 percent in early trade on Wednesday, to its lowest level in two years. At 11:27 a.m., DLF shares were down 4.1 percent at Rs.210.15.
“The operating margins are down to 25 percent, and the company has not delivered on its targets for residential and lease sales,” said Suman Memani, real estate analyst at Mumbai’s PINC Research.
“There needs to be clarity on how the company will ensure the revised asset sales, and if higher costs will impact future quarters,” he added.
Property prices in major Indian cities like Mumbai and New Delhi have more than doubled over the past 18 months, spurred by rising incomes and a firm stock market, but sales volumes are down by a third from a year ago as high prices and rising borrowing costs deter buyers.
India’s central bank has been one of the most aggressive to tighten liquidity, raising rates nine times since March 2010, including a bigger-than-expected 50 basis point this month.
DLF said while demand from corporates and actual users in the residential & commercial leasing segments continued to be healthy, speculative demand has petered out and investment demand has slowed down as the financing-cost equation worsens.
Rapid urbanisation and rising income levels are expected to boost demand for houses in Asia’s third-largest economy, but high inflation and rising interest rates are negatives for the sector in the near term.
Q4 DISAPPOINTS
New Delhi-based DLF said consolidated net profit fell 19 percent to Rs.3.45 billion ($76 million) in the quarter ended March as land costs tripled and DLF took a one-time charge to account for higher steel and cement prices.
Analysts, on average, expected the company to post net profit of Rs.4.8 billion on revenue of 23.82 billion rupees, according to Thomson Reuters I/B/E/S. Revenue in the quarter rose 34 percent to Rs.28.7 billion.
DLF had net debt of about Rs.214 billion at the end of March.
Shares in DLF, valued at $8.2 billion, have lost 28 percent of their value this year, underperforming a near 13 percent fall in the Mumbai market .
The real estate sector index is down nearly 31 percent this year. Shares in property firms DB Realty and Unitech Ltd, whose top officials have been charged by federal police over their involvement in a huge telecoms licensing scandal, have lost 64 percent and 53 percent, respectively, this year. ($1 = Rs.45.2)
