Rajeev Talwar, group executive director of DLF, in an interview with CNBC-TV18's Mitali Mukherjee and Sonia Shenoy, spoke about the latest happenings in the company and the road ahead.
“We are looking to reduce debt through non-core asset monetisation. We will monetise assets worth Rs 6000-7000 crore over two years,” he said.
Talwar also gave his views on the Competition Commission of India's (CCI) order, which has asked the company to amend all its unfair practices and has slapped a Rs 630 crore fine on the company.
"The fine charged by CCI still remains a contentious issue since it is testing boundaries of the competition law. The order can be challenged within 60 days of being passed," added Talwar.
Below is the edited transcript of the interview. Also watch the accompanying videos.
Q: What is DLF’s stance at this point on the CCI order and will you be approaching the Competition Appellate Tribunal (CAT)?
A: We do believe we have a strong case and grave injustice has been done to us, but we never went public after the judgment. In fact, one of the members of CCI has admitted that it is indeed a contentious issue, which needs to be tested out in the Appellate Tribunal. We also feel that it is a contentious issue.
It is a fair, free and open market and the fact, that there are hundreds of suppliers, makes it very competitive. In fact, the biggest names in the country are part and parcel of the NCR (national capital region) real estate story.
We are quite humbled to know that CCI has acknowledged our contribution in building a modern city in Gurgoan, but it should not exclude our collaborators, competitors and government agencies, who have made an equal contribution in developing the city from the beginning.
Q: Will you challenge this order since the fine they have charged seems to be huge?
A: At the moment, CCI is testing boundaries of the Competition Law. To get into the realm of Competition Law; one would say that loose research has put the Competition Law in a flux by the CCI and the relevant market concept has been narrowed down heavily into a price band in a particular city rather the region. Analysts keep on saying that the NCR is one large market, but they have narrowed it down so heavily that they should have had some data to back their claims.
As far as we see it, the data is based on compilation of the turnover in all segments. They have narrowed down the relevant market concept to residential, high-end luxury, but the data on which they are banking, is the turnover of all the segments of real estate, for instance, SEZ, commercial offices, retail, residential, etc. They have also included some construction companies.
We are a real estate company. We deliver a manufactured product to the customer and we do not take up work on commission basis. So, the data itself, on which, dominance is tried to derived, is questionable. On these two accounts, it can be said that the CCI has been testing the boundaries of Competition Law. It may lay down new parameters for the law, and then, will make it populist using some consumer complaints.
Q: When exactly are you looking to approach the Competition Appellate Tribunal and what happens to the Rs 630 crore penalty? When will you get to know whether it crystallises in your books or not?
A: The timeline is set by the Competition Act itself. The act gives you 60 days to go in for an appeal. Moreover, the penalty is based on factors like the company’s total turnover in the last three years and the issues raised for consumer interest.
There are some deceptive factors, which seems to have crept in despite the fact that they were clearly rebutted in the submissions made to the Commission. Raising numbers of floors from 19 to 29 was one of those factors. The application form, which was given in 2006, stated that we have already applied. Hence, if the permission is given, the first choice through a written notice would be given to the existing buyers. We had done this and few of the original buyers had shifted to higher floors. It means that the buyers were informed; they were kept in the loop.
Moreover, the issue of delayed payment to customers is again not based on facts because we honour each one of our customers, and if customers repeatedly come back us, it should be sign of our transparency and fair dealings with them and not the other way round.
In this very case, we have not only reduced the price for the original buyers, but we had also thought of giving them extra facilities like fully-fitted kitchen with appliances, toilets with cupboards, tiling and glass partitions and bedrooms with cupboards, etc. The customers can then move in with just their luggage and furniture.
Secondly, we have not only reduced the price, but we had made standard operating procedures for the first time payments, which were construction-linked and not time-linked. Hence, we had recognised that the procedure will take long time but it would save money for our buyers because at that time, the global economy was in a meltdown.
Thirdly, we had doubled the penalty on ourselves from Rs 5 to Rs 10 per month per square foot, knowing that these projects may get delayed, and thereby, we had given concession, which totaled to about 15-20% of the sale price. Normally, liquidated damages come to about 2.5-3%, while these were 15-20% of the total value.
Lastly, they said there is disparity in the rates of interest which we charge. Actually, we are not in the business of earning money through a high rate of interest. The high rate of interest is purely a deterrent rate, so when the installments become due, they are paid up instead of depositing money into a fixed deposit account, trying to earn some interest while depriving the builder of money, which is due.
In fact, if any money was given extra to us over and above the installments and if that was due, then we had promised an interest of 9%, double the rate of interest, which you get in savings bank account. So on both accounts, the buyers would be the beneficiary. He would get higher rate of interest if he keeps his money with us and secondly, the deterrent rate is also much lower when compared to financial industries like credit card companies, bank loans, life insurance premiums, etc, which are due.
Q: What else is lined up in terms of asset sales including the ITSEZ in Pune? What is it that DLF would seek to sell and raise money and what would the quantum be?
A: We are looking at a quantum of about Rs 6000-7000 crore over a medium-term of two years. If any deal or negotiation, which comes through to help us in reducing our debt, we will have to make it public.
Q: So, what exactly is the debt reduction game plan?
A: The game plan is to reduce debt by Rs 6000-7000 crore in the next two years.
DLF stock price
On November 27, 2015, DLF closed at Rs 114.10, up Rs 0.65, or 0.57 percent. The 52-week high of the share was Rs 179.00 and the 52-week low was Rs 93.00.
The company's trailing 12-month (TTM) EPS was at Rs 4.33 per share as per the quarter ended September 2015. The stock's price-to-earnings (P/E) ratio was 26.35. The latest book value of the company is Rs 96.63 per share. At current value, the price-to-book value of the company is 1.18.
READ MORE ON CCI, DLF, Competition Commission of India, Rajeev Talwar, debt, asset monetisation, Competition Law, Competition Appellate Tribunal
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