Debt reduction to under Rs 2,000 crore to improve cash flows for DLF

Strong rental revenues coupled with improving residential portfolio are positives

The DLF stock gained about 4 per cent in trade on Tuesday after the company announced that it would raise equity funds through the qualified institutional placement route. While the floor price of the same is pegged at Rs 193 a share, the company could offer a 5 per cent discount on the same. Given the 17.3 crore share on offer, the additional issuance could fetch the company upwards of Rs 3,100 crore depending on the pricing which is expected to be announced on Thursday. 

The company had a debt of Rs 7,200 crore at the end of December 2018 quarter. The promoters are expected to infuse about Rs 2,250 crore which could take their share above the 75 per cent mark. The Rs 3,100 crore QIP will help bring down the promoter shareholding and will also reduce overall debt to just under Rs 2,000 crore. The DLF management is looking to become debt free in the near term. The reduction in debt after sharply increasing over the last four years has over the last few quarters come down resulting in improving cash flows. The December quarter was the second consecutive period in which it achieved positive operating cash flows.

While the recovery in the residential segment is expected to be gradual, the key trigger in addition to lower leverage is the rise in rental income. Analysts at CLSA expect DLF’s total lease income to rise 50 per cent over the FY18-21 period to touch Rs 4,000 crore and grow at an annual rate of 10 per cent over the long term. For the residential segment which has an inventory of Rs 12,300 crore, it is able to book sales of about Rs 600 crore per quarter. The company is sticking to its guidance of achieving Rs 2,250 crore for FY19 and has achieved net sales of Rs 1,790 crore for the first three quarters of FY19. Analysts say the sales trajectory for DLF is commendable given it comes at a time of weak demand and pricing pressures. Deutsche Bank’s Bijay Kumar says that the sales should be seen in the context of extreme weakness last fiscal year when nine months of FY18 yielded sales of just Rs 300 crore. Most analysts are positive on the prospects but given the stock run up, investors can enter the stock on dips.