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DLF to focus on hotels, SEZ development

Published on Thu, Jul 19, 2007 at 14:00 | Source : Moneycontrol.com

Updated at Fri, Jul 20, 2007 at 09:42

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DLF

BSE | NSE 28/05/12

Are Mutual Funds betting on DLF?

Delhi-based realty developer DLF expects to maintain strong operating profit margins in FY08.

Rajiv Singh , Vice-Chairman, DLF, expects volume growth to strengthen in times to come. The thrust in middle-income housing will take off next quarter, he said.

The company was cash flow positive and is focusing on hotels as well as SEZ development, Singh said. Revenues included money from sale of assets, he added.

Excerpts from CNBC-TV18's exclusive interview with Rajiv Singh:

Q: Does the Rs 3,100 crore in revenues that you have clocked this quarter include any revenues or sales booked to DLF Assets?

A: They include revenues of sales booked to DLF Assets, in consistency with what we had started last year. As compared to last year, about 60% of operating profit has come from DLF Assets. In this quarter, that percentage is now under 50%. To that extent, the rest of operations have also started performing strongly this quarter.

Q: What exactly did DLF Assets contribute to revenues and operating profits?

A: For operating profit, it would have been under 50%. So, DLF Assets would have contributed around Rs 1,000 crore on an operating profit basis. Total revenue contribution would have been around Rs 1,600 crore.

Q: Could you break up the non-DLF Assets between residential and commercial for this quarter?

A: The bulk of them would be residential. Commercial revenues, which are retail revenues in a sense, are basically on a rental model. Retail revenues would not be in excess of Rs 250 crore and the balance would be residential.

Q: You spoke about annualized EPS of Rs 35. Do you think this is the kind of quarterly run-rate that you may have of revenues, about Rs 3,000 crore and Rs 1,500 crore in revenues and profit respectively? Can the numbers be extrapolated evenly for the remaining three quarters?

A: Ours is a lumpy business, so I hesitate to make that statement. We are not yet going on a vacation and hope to continue working for the next nine months. We hope to not only maintain that, but also to increase our mettle as we go forward.

Q: Are you saying, on a base case, that you can multiply the current quarter's numbers by 4 and not be totally off the mark for full-year profit projections of Rs 6,000 crore?

A: I hope not to be totally off the mark. On the conservative side, pleasant surprises will await us in the quarters going forward. We are extremely optimistic about this year and the years ahead.

Q: Could you confirm whether the operating margin for this quarter has indeed been 56%? Are you saying that margins for the full year will be comparable give or take a bit?

A: Yes, give or take a bit. As our thrust into middle-income housing acquires more volume, margin dilution will naturally take place. This will be accompanied by a huge increase in revenues. This year, I don't expect that to be significant, since we are just starting that. For this year, that statement may be generally correct.

Q: Of the Rs 1,600 crore in revenues that you booked from DLF Assets, from which properties would those revenues have come from.

A: These are from our office projects in Chennai, Hyderabad, and Gurgaon.

Q: The remaining Rs 1,500 crore has principally come from the residential area. Could you break it up between geographies?

A: At present, most of it would come from NCR and Gurgaon predominantly. A part of it has come in from Delhi. In terms of revenue, the break up would be about 60% and 40% for Gurgaon and Delhi respectively.

Q: What are the key projects that are coming on stream in terms of completion of projects? What would sales for the remaining three quarters be? Which are the major ones that you can highlight for the rest of the year?

A: We are starting several new large office complexes in Gurgaon, Kolkata, Nagpur, Ahmedabad, and Mumbai. That's a major area. In offices, we will be opening a lot of new fronts within this year itself.

In retail, we have just started construction on our mall in Mumbai. This was the NTC mill land that we had won a couple of years back. That is a major move for us. Our mall in Gurgaon, which is the largest mall proposed in India, is now in active construction.

At present, we expect all our retail projects to be under construction. Moreover, we expect the first delivery of our new generation malls, within this financial year itself. In the late third quarter or early fourth quarter, we will see the first of these malls actually opening up and setting new standards for retail in India.

We will definitely be launching projects shortly in Bangalore, Chennai, and Indore. These are three centers where we will be launching in the near future. We hope to launch in and around Chandigarh and other locations possibly in the third quarter.

Q: Do you hope that all of this will end up totaling something close to or in excess of Rs 12,000 crore in revenue for the full-year?

A: Yes, let's see how things go. We are hoping to see interest rates stabilising and moderating. We are optimistic that things should be substantially better.

Q: Can you give us some inkling of how much above Rs 12,000 crore do you hope? Would it be significantly in excess of that?

A: Yes, it would be materially in excess of that. May be after the second quarter, I will be able to give you a better picture.

Q: Are you confident that the Rs 6,000 crore that you have paid for the Dwarka project, which was unveiled earlier this week, will give you realisations commensurate with the 50% margin profile that you are currently working on?

A: We expect to enjoy the same margin profile in Dwarka also. In Dwarka, the land cost is only Rs 900 crore. The balance represents construction costs and revenues. To that extent, it is a large project. But it is a project which represents fair value to the company.

Q: Would that hold true for most new land acquisitions that you are making because this is a question, which a lot of your investors have? You may be enjoying very high margins on historically acquired land, but for the land that you are acquiring currently, would you be able to demonstrate the same kind of profitability?

A: A large part of our profits come from land that we acquired in the recent past, that's in the last three to four years. We benefit and enjoy the benefits of history. I don't think that we are a company that is resting on its past. We are continuing to buy and make profit in everything we do. In the last three to four years, the land we bought is now being converted into profits. Whatever we buy today is not margin dilutive in any sense.

Q: How close are you to sealing the DCM deal because it has been reported and denied? I know that you are in the fray but do you think you are going to get that piece of land?

A: One can only be optimistic in life. Yes, I am optimistic. The deal is not done yet. The sellers have to take a final call on it and we await their decision. We believe we have given them the best offer we could.

Q: Do you think your bid would be the most aggressive bid among the people who have thrown their hat into the ring? What is your sense?

A: It has to be, otherwise who would sell it to us.

Q: DCM has gone on record to say that is not only the price which will determine the sale but other extraneous factors.

A: Other extraneous factors at the end of the day boil down to price and payment terms. We hope to be aggressive in both of them. If somebody outbids us, I can't say anything on that. I do believe we have offered them the best possible value for their property.

Q: What do you see in terms of your transactions with DLF Assets for the rest of the year? Do you expect them to contribute as much as 40-50% to the above Rs 12,000 in revenue that you are talking about?

A: The percentage each and every quarter will keep declining as the rest of the business keeps picking up. But it will be in a reducing percentage as we go along.

Q: What do you consider the biggest risk to your margin profile from hereon? Would it be the cost of newly acquired land or do you think it would be issues like a decline in property rates in key markets that you are present in or executing in?

A: I don't see too much short-term pressure on our margins, because most of our property is already pre-booked and leased. To that extent, I don't see any problem in terms of maintaining our margins in the immediate future. They only reflect our deeds and commitments made in the past. The inflation in construction costs continues to be a worry. It could impact things a little bit. In our case, I don't think that's a significant worry or issue. For this year and next year we have got it pretty well locked down.

Q: How much money do you expect to spend in the rest of the year on land acquisition?

A: It depends on the number of deals and the quality of deals coming our way. In our three core businesses, we expect to be spending about Rs 5,000-6,000 crore. We will be spending large sums of money in our non-core businesses ‑ hotels and SEZs ‑ which are going to be our core business in the future. That would be in addition to this, which could bring in additional sums of money.

Q: How much visibility do you have from hereon as far as you can see? Given the land bank that you are sitting on, if you are going to execute something like USD 3-4 billion this year, on that base to keep growing, do you have that visibility for 2-4 years, given your existing land bank today?

A: I am confident on our visibility for the next five years.

Q: To demonstrate, what kind of growth annually do you see on this base?

A: We will beat whatever the market expects from us. We will try to create high expectations and then try to beat them. In the realty industry, the growth rate is normally a multiple of the GDP growth rate. It is 2-2.5 times the GDP growth rate, which is the normal principle. We will be well in excess of that. We certainly expect growth rates of above 20%, if not significantly greater, for the next five years.