Friday, August 24, 2012

Will the lion roar again?

Slowdown had a sobering effect on DLF’s meteoric rise in the early years of this decade. With a new look and renewed vigour, the company attempts to claw its way back to its glory days. by Virat Bahri

Five odd years is a terribly long wait. But it would be worth it for this 17.5 acre plot of land in Lower Parel, Mumbai, which would soon be home to 90-floor super luxury tower. Bought by DLF in 2005 from National Textile Corporation for over Rs.7 billion, the land hasn’t witnessed realty action since then; with the downturn being the obvious spanner in the works. DLF planned a mall initially, but has now decided in favour of residential accommodation with the 2000-odd flats in the tower to cost Rs.50-100 million each with targeted revenue of Rs.150 billion for the company.

2006 was a different era. At that time, an unlisted DLF was hitting all the high gears with surging fortunes in residential, commercial and retail. Then came investments into new businesses – hotels, SEZs, infrastructure, IT parks, next generation malls, asset management… there just seemed to be no end, more certainly so when news of the IPO came up, fuelling speculations that K. P. Singh would be the world’s richest man. The $2.2 billion IPO was launched in 2007, and K. P. Singh was ranked 62 on the Forbes’ list of global richest that year.

India’s realty sector was seeing rising valuations, but it wasn’t really the American bubble. The fact that realty was a lagging indicator for the booming economy had a lot to do with it. But with the slowdown, sentiments went turn turtle across – consumers, banks, corporates, retail. Realtors who had assumed huge debts in the bull run were sitting on land that would provide cash flows way ahead into the future and got further stuck when takers for their existing products dwindled. DLF’s revenues on a standalone basis in FY 2008-09 were Rs.28.28 billion, a dizzying drop of around 49% yoy and profits fell by around 40% to Rs.15.47 billion.

A company like DLF only understands too well that market speculation and sentiment are fickle by nature and are not the true parameters on which a company can judge its merits, or demerits for that matter. But then, understanding how they are playing out at any given point of time is crucial to cushion oneself against the shocks of a viciously cyclical business like real estate. As the company came face to face with a calamitous situation in 2008, it had two prerogatives – the first one was to steer the ship out of the immediate storm and the second one was to take cognizance of its priorities and redefine its business model for the future.

DLF isn’t out of the storm yet. It saw revenues drop by a further 15% to Rs.24 billion and profits falling by 50% to Rs.7.7 billion yoy for FY 2009-10. They missed the target by 16%, and achieved 12.6 million sq. ft. (msf) with an average realisation of Rs.5700 per sq. ft. But as per DLF Limited Vice Chairman Rajiv Singh the bottom is already behind them. He commented on the results, “The overall economic growth, improved liquidity coupled with buyers’ sentiments turning positive, led to a buoyant demand for our projects across segments...” Q4 has been a visible sign of hope with consolidated revenues at Rs.21.46 billion up by 59% yoy. DLF Group Executive Director Rajeev Talwar points out in an exclusive interaction with B&E (featured after this story), “Construction in the last 1 year, which had dropped down from peak levels of 65-70 msf to 40-41 msf has now picked up again to around 56 msf; an increase of around 40%.” And buoyed by the general sense of revival in the Indian economy, DLF expects to rid itself of the devils of downturn for good. B&E analyses how the market leader has evolved in the midst of slowdown and details the prospects for the company in the coming year.


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