Over a period of three years, DLF plans to sale 25-30 million sq ft of projects and generate EBITDA of more than Rs 7700 crore.
The debt-laden realty major DLF has pulled up its sleeves to cut down on debt, to improve its operational performance and to enhance its cash flows. The company has laid down numerous measures such as new project launches, sale of non-core assets and issue of fresh equity to turn around its books of accounts.
Ashok Tyagi, chief financial officer, DLF told CNBC TV18 in an interview that the company will be able to halve its debt to Rs 12,000 crore from Rs 21,400 crore currently.
Over a period of three years, the construction company plans to sell 25-30 million sq ft of projects and generate earnings before interest tax depreciation and amortization of more than Rs 7700 crore.
Below is the edited transcript of the interview on CNBC-TV18
Q: How do you plan to scale down your debt and what levers you have penciled in for that including asset sales and possible equity issuances?
A: We had been talking about reducing debt for a few quarters now. Oct-Dec was the first quarter where our numbers showed a reduction in debt of about Rs 1,850 crore. So we are now down from Rs 23,200 crore to about Rs 21,400 crore from a debt standpoint.
Then this will be followed by the capital action to comply with the Securities and Exchange Board of India (SEBI) norms. We are going to issue just north of 8 crore new shares to comply with the SEBI norms. So we expect that at the end of June the debt will further come down to Rs 16,000-17,000 crore range depending on how the entire capital issuance goes.
Our stable debt number (which we believe is a minimal stress number) is a debt which can be services comfortably by our rental assets through their lease rental discounting mode. That number we believe is about Rs 12000 crore. So we plan to cut debt to Rs 12,000 crore in three years from a Rs 16,000-17,000 crore.
Our development business is working on zero debt scenario which is the ideal situation for us to be in. I anticipate this journey to take between two-three years.
Q: The market got quite excited about EBITDA guidance of Rs 8250 crore on a steady state basis. Can you just take us through what is the route to that kind of EBITDA delivery?
A: I just want to put a caveat that from our financial numbers recovery standpoint we spread across three stages. One is the reduction in net debt which you are already beginning to see. With the launches you will see an improvement in cash flows. However because most of the new launches will be governed by new accounting guidelines which unfortunately put a four-six quarter lag between the time you launch a project till the time that you can book revenues. The EBITDA numbers will start strengthening only about four quarters down the line.
Our rental EBITDA as of today is running at about Rs 1,750 crore a year. With the natural escalation of 15 percent every three years and a couple of rental assets coming on (such as the Mall of India in Noida expected to be commissioned in calendar year 2013), and with a muted leasing volume of about 1.5 million square feet a year going forward, we believe that three years down the line our rental EBITDA should be in the range of about Rs 2700 crore.
On the development side, we expect that 1.5 million square feet of sales in the Golf Course Phase five area, about 2.5 million sq ft of sales in the New Gurgaon area, about 2.5-3 million sq ft of sales in the rest of India and about 0.5 million sq ft of sales in the Delhi super-premium area, should help us to have a sustainable EBITDA of north of Rs 5000 crore three years from now. Now depending on the market these three years could be four years, but the indications right now are that at the end of three years we should be able to broadly stabilize around this level. About Rs 5,000 crore plus of EBITDA from the development business, and about Rs 2,700 crore of EBITDA from the rental business.
Q: Can you just take us through what you expect to achieve in year one, year two as road maps or milestones to get into that three year figure?
A: So the numbers that I mentioned which is 1.5 million square feet of sales in the Golf Course Phase five area, about 2.5 million sq ft of sales in the New Gurgaon area and about 2.5-3 million sq ft of sales in the rest of India area, this sales number you should begin seeing from the next fiscal itself which is 2013-14.
However you should see a part of these launches based EBITDA flowing into the books from the next fiscal and hopefully by the end of the third fiscal. So you will see the sales volume hitting from next fiscal onwards but the EBITDA buildup of that will happen across the next three years with the next year being the lowest, the year after being the higher and hopefully in the third fiscal from now we should be ballpark in the numbers that we are talking about.
Q: Some analysts felt that the management was pretty cautious in terms on execution related issues even though you outsource a lot of your projects to big companies. Could you breakup that target you just outlined in terms of specific projects that you hope to be on stream between year one and year two?
A: We are talking of about 8-9 million sq ft of sales every year that means on a three year cycle one is talking about an execution buildup of about 25 million sq ft which we believe is in a range which can be handled with outsourced agencies also. One is talking of launching about 8-9 million sq ft in terms of sales every year across a three year cycle which assuming that the project takes three and a half years to complete you are talking of a peak execution volume of about 25-30 million sq ft on all these new projects which is doable. A number significantly north of that becomes a challenge from an execution standpoint.
Q: You have indicated in the past that you will look at doing equity issuances as well. How many issuances do you think you will have to do? What kind of instrument are you leaning towards and what kind of line is the management comfortable with in terms of equity dilution?
A: Right now we are doing an equity dilution which is for SEBI compliance. All of us know that there is a promoter Compulsorily Convertible Preference Shares (CCPS) issue lying in one of the subsidiary DLF Cyber City and at some stage before March 15 that will need to be resolved. The exact roadmap of that is unclear right now as we are focused on the equity issuance which has to be done by end of May. However I do believe that by March 15 that issue will need to be resolved in some acceptable form and shape. And may be one of those issues would be that at some stage that could lead to a secondary dilution. Right now it is still premature to talk about that.
Q: Of the numbers from sales that you are talking about over the next two-three years how much of it is predicated on a jump in realisations or selling rates over the next 24-36 months. Have you priced in significant increases in realisations?
A: No. Infact the numbers that I spoke to you about are based on the prices that we are talking today. We launched the Sky Court which was our last launch in New Gurgaon at about Rs 8000 per sq ft. Our next launch in that area should be slightly higher than that . We will launch Phase 5 in the next couple of months, we’ll know the prices then. But we don’t see any significant increases in prices from now on. We are anticipating that these launch prices are the ones that should sustain with some degree of tinkering.
DLF stock price
On May 22, 2015, DLF closed at Rs 123.20, down Rs 1.05, or 0.85 percent. The 52-week high of the share was Rs 242.80 and the 52-week low was Rs 100.00.
The company's trailing 12-month (TTM) EPS was at Rs 5.28 per share as per the quarter ended March 2015. The stock's price-to-earnings (P/E) ratio was 23.33. The latest book value of the company is Rs 98.68 per share. At current value, the price-to-book value of the company is 1.25.
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