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Ashok Tyagi, chief financial officer of DLF says, we should be able to reduce our debt by an anticipated level of about Rs 5,000 crore in FY13.
We are still committed to keep on reducing our debt.
Q: What is going to be the next trigger for DLF to reduce its debt? Even if you look at these three marquee transactions, the Lower Parel Land deal, the Aman Resorts sale and the Wind Power business sale, you are going to shave off about Rs 5,000-6,000 crore from the debt. You are still going to be left with Rs 19,000-20,000 crore as debt. How are you going to deleverage?
A: There are two points. One, I know the street loves triggers, but unfortunately it is more of a process than a trigger. Second, we had a net debt of approximately Rs 22,500 crore, when we began this financial year. With the reduction of Rs 5,000, we expect the year to end at a number somewhere around Rs 17,000-17,500 crore range.
Our year-end rental flow should be about Rs 2,000 crore a year. So, we expect that about Rs 11,000-12,000 crore of our debt can be funded in a self servicing way through our rental flow, through the classical lease rental discounting mechanism. So, honestly that Rs 11,000-12,000 crore of debt, which can be supported by my rental flow, does not worry us because it is a self liquidating debt.
In the balance side, we are having a debt of about Rs 10,500 crore to be serviced out of our development income. With these divestures, that should be down to about Rs 5,000-5,500 crore; Rs 17,500 minus Rs 12,000 crore. Honestly, Rs 5,500 crore also will keep on coming down. But I don’t think that we are looking at one big bang event to do that. That will be done by a process that will be driven by operating surpluses and residual non-core divestiture that will keep on happening.
At an EBITDA of about Rs 2,500 crore from the development business, a Rs 5,500 crore debt is barely a multiple of about 2-2.25. That by itself is very healthy. But we are still committed to keep on reducing that number downwards as well.
Q: By when do you think you will actually have a situation where on your books you will have a Rs 5,000-6,000 crore debt?
A: I see no reason why we should set ourselves a target like that. We are a company that is into building extremely high capital intensive offices and malls. Those by the very nature of the animal are high capex products. Hence, we believe that the Rs 11,000-12,000 crore debt level that can be serviced by the rental business is something which will stay there, atleast for the next two-three years.
On the development side of the business, we should be down to Rs 5,500 crore. We will keep on making ways to chip it down further. But honestly I am not committing myself to a number as ambitious as the one you are talking about.
Q: But isn’t this also all assuming that the business is going to stay stagnant and you are not going to grow?
A: Are these conservative assumptions? Yes. But, in all fairness, we should plan conservatively and overachieve versus vise-versa.
Besides DLF's debt, the other overhang is its legal troubles. DLF has been snapped with Rs 630 crore penalty by the Competition watchdog Competition Commission of India (CCI) for misusing its dominating position in Gurgaon.
The company has appealed at the Competition Tribunal. But the CCI sees and resist order nevertheless is impossible. Will it impact DLF plans of future launches, especially its super luxury residential project Magnolia II at the Gurgaon Golf course?
There are also appeals against two Punjab and Haryana High Court orders to demolish two projects of DLF in Gurgaon, the 20 acre cyber city technology part and a 30 acre IT SEZ.
The fate of a 350-acre land parcel meant for a recreation and leisure project in Gurgoan, which DLF purchased for Rs 1,750 crore, is at the hands of the Supreme Court. The tax man is also trying to recover nearly Rs 3,000 crore as additional tax.
Tyagi: We have our next hearing of Competition Appellate Tribunal (COMPAT) in early October. Because the entire issue is sub-judice, I would not venture into making a specific comment on that.
But we do believe that within the boundaries of the law we should be able to continue getting our products to the customers. In the second half of the year, we do expect to get more of our products to the customers across the country including in Gurgaon area.
Q: So, you are saying that whatever transpired the CCI, whatever order came, whatever is happening right now in the COMPAT is not going to impact the time line of your plan launches, right?
A: All I am saying is that it is sub-judice. Let us wait for the COMPAT, how it evolves. Anyway we have right now planned for some of these launches in Gurgaon only in the second half of the year. So, it is not that there is a conflict between my launch plan and this uncertainty as of today. We have anyway planned for these in the second half of the year. By that time, hopefully we will have some great clarity on this.
Q: Are you also factoring in launches for reducing debt?
A: Obviously, no. The Rs 5,000 crore number, in all fairness, is predominately driven by the non-core divestitures. We do believe that the launches should get more operating cash flows. That should hopefully make us better, but right now our commitment is Rs 5,000 crore number. As you look at the situation, beyond March 2013, operating flows riding on the strength of the new launches would obviously be a very significant chuck of the total operating cash flow.
DLF stock price
On July 23, 2014, DLF closed at Rs 214.80, down Rs 1.95, or 0.9 percent. The 52-week high of the share was Rs 242.80 and the 52-week low was Rs 120.25.
The company's trailing 12-month (TTM) EPS was at Rs 2.96 per share as per the quarter ended March 2014. The stock's price-to-earnings (P/E) ratio was 72.57. The latest book value of the company is Rs 85.08 per share. At current value, the price-to-book value of the company is 2.52.
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