DLF: Cash flows will improve

The rally in the markets has been useful to the promoters of DLF who have managed to sell a part of their stake to institutional investors; by placing shares at Rs 230, a 2.6 per cent discount to Tuesday’s closing price, they have raised approximately Rs 3,860 crore. The money may not come into DLF directly but it will be used to reduce DLF’s receivables from DLF Assets (DLF), a company owned by the promoters of DLF.

DAL’s outstandings to DLF are currently estimated at close to Rs 4,900 crore and any reduction in the exposure to DAL — even Rs 2,000 crore — is welcome, since it will ease DLF’s cash flows. Moreover, the management is exploring other ways to raise resources — about Rs 2,000 crore from the sale of assets for instance. Any move to bring down the debt on DLF’s balance sheet from around Rs 14,500 crore currently, and to reduce interest costs significantly, can only help the realty firm at a time when access to capital remains difficult.

With more cash in hand, the realty firm can go ahead with its construction plans. While the property market remains in a bit of a slump, the response to some of DLF’s residential projects in Bangalore and Hyderabad, positioned at lower price points, is believed to have been encouraging. The company reportedly plans to launch projects in both the high-value and mid-income segments covering about 14 million sq feet once its sees some more recover in demand.

Should the macroeconomic environment improve, it’s possible sales for DLF will pick up faster than expected — currently analysts are pencilling in revenues of around Rs 5,000 in the current year. The DLF stock rose about 4 per cent on Tuesday, in anticipation of the share-sale transaction, but lost some of those gains on Wednesday.