Realtors’ debt pangs grow as fiscal nears close

The impending closure of the financial year has the listed real estate developers scurrying to make final repayments or get debt refinanced.

Among others, DLF, the largest realtor by market capitalisation, has mandatory repayments of Rs210 crore coming up as it had refinanced Rs1,458 crore in the last quarter.

Though company officials claim it is in a comfortable position in terms of debt, analysts aren’t convinced.

“We believe the FY12 run rate of operational cash surplus before interest should average about Rs400 crore a month, up from about Rs200-250 crore currently. Given that interest cost is itself expected to average about Rs200 crore a month, we do not believe the company would be able to reduce its debt by more than Rs2,000 crore in FY12F and possibly even in FY13F,” Aatash Shah, research analyst with Nomura Financial Advisory and Securities India Pvt Ltd, wrote in a report to clients on March 14 while maintaining a neutral rating on DLF.

Another analyst from a domestic brokerage said, “They had talked about reducing debt (vis-a-vis equity) to 0.5 by the end of the fiscal which is not to be the case. They have also started acquiring land in some areas, which they will continue to do so they need to figure out different money raising sources.”

“The operational cash surplus is thus unlikely to be sufficient to meet debt-servicing obligations completely, and hence DLF would need to resort to non-operational funding sources such as the sale of non-core assets like Aman Resorts or the wind power business, monetisation of leased assets, private equity funding or equity dilution,” wrote Shah.

DLF’s interest outgo increased 66.5% year on year in the quarter ended December, even as its net profit margin fell from 23.1% to 18.8%.

The company declined to comment.

Unitech, the second-largest player by market capitalisation, also had repayments of close to Rs1,000 crore by the end of this fiscal, but has not offered clear numbers.

“Overall, the company has been reducing its debt with improved cash flows from operations. From a peak level in December 2008, we have successfully reduced debt by almost 58%. As declared in the Q3FY11 results, we have reduced our net debt by Rs555 crore to Rs4,617.47 crore as of December 31, 2010. With a net debt-equity ratio of 0.40, Unitech Ltd is comfortable from a financial leverage perspective. Also, the debt profile has improved with longer maturity periods with the average maturity around 3 years,” R Nagaraju, vice-president, corporate planning, said. 

Analysts say though debt repayments are being translated into refinancing, an increase in new debt cost will hamper the company’s portfolio in the long run as operational cash flows are drying up by the day and sales are not happening due to increased prices.