Interest cost will go down post Aman Resorts deal: DLF

DLF's consolidated third-quarter net profit fell 49 percent year-on-year to Rs 145.29 crore, hit by a one-time provision. The company settled a dispute with Delhi Development Authority (DDA) over the Dwarka Convention Center and was refunded Rs 676 crore by DDA for the final settlement.

Quarterly revenues rose 57 percent year-on-year to Rs 2058.42 crore.

However, the company is lagging behind its Rs 6,000-crore sales guidance for FY14.

Tyagi said sales bookings have been very soft for the past few quarters and he doesn’t expect the demand situation to improve till H1FY15.

DLF's operating profits (EBITDA), excluding one-off gains, stood at 36 percent in Q3. “We will return to 40 percent EBITDA after 2-3 quarters," Tyagi said.

Edelweiss has maintained a 'buy' on DLF with a target price of Rs 249. It feels the company’s Aman Resorts sale is a key milestone in debt reduction plan. DLF will also get refund of Rs 700 crore from DDA for returning 35-acre land parcel in Dwarka, it said.

JP Morgan has maintained its ‘overweight’ rating with a target price of Rs 210 by March 2014. It said DLF’s risk-reward is favourable at current levels.

Macquaire has maintained its ‘outperformer’ rating with a 12-month target price of Rs 183. The brokerage said that it prefers DLF over rest of listed companies in the NCR region, however, adding that its debt reduction is critical for re-rating.

Below is the interview of Ashok Tyagi, Group CFO of DLF with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.

Sonia: I am going to ask you about your debt situation because you have managed to meet your FY14 debt guidance of Rs 17,500 crore but now the street is looking for more. Tell us whether there are any more asset sales on the cards either your Hyderabad property that you are looking to offload and what is the guided debt for either FY15 or for the next six-eight months?

A: Obviously we have achieved the broad guidance levels of Rs 17,500 crore of net debt that we had set for ourselves and guided the street too for March 2014. Given the stressed conditions in the market, we anticipate that at least for the next few quarters, it could be between 2 and 4 quarters, our net debt will broadly continue along this number of Rs 17,500 crore.

We are not anticipating an immediate reduction below this number in the immediate short-term because the demand scenario is slightly more stressed than what we would have liked it to be. Having said that, we do believe that of this Rs 17,500 crore about Rs 13,000 crore debt is now supportable by our rental assets on a self liquidating basis.

So in that sense the quality of our debt is now pretty strong and that will continue getting more robust as some of our newer rental assets like the Mall of India, Noida come onto stream by the end of the year.

Latha: There is a 17 acre land parcel in Hyderabad, is that top on the list of sellable assets and while on the matter, can you tell us how this entire state bifurcation will affect real estate prices in Hyderabad itself and therefore what you might realize?

A: While we believe that the first major chapter of our asset divestiture is now closed with the closure of a month, we continue to have assets, which we believe are noncore and can be a part of the divestiture strategy going forward, which includes a couple of assets in Hyderabad, one of which you mentioned and some other assets are spread across the different part of the country.

I would not like to specifically comment on how this division of this state, as and when it is finally activated, would have a bearing on the real estate prices but clearly uncertainty is never good for the real estate market is all that I say right now on that.

Sonia: This quarter as well interest cost remain quite high, more than Rs 630 crore which is a growth of about 10 percent on a year-on-year (Y-o-Y) basis. Give us a sense of from hereon, what kind of interest cost trajectory will DLF be comfortable with and what you can achieve as well?

A: We would always like to maintain a healthy liquidity buffer with ourselves. So you would always see a difference between our gross debt and our net debt because we will try to always have a cash buffer enough for at least servicing the next six months mandatory liabilities. However, there will be a reduction in the interest cost obviously post the Aman transaction. You would begin seeing the full stream of it from Q1.

The reason the interest cost have tended to go up on a book basis is also on account of two things. One is that this year vis-à-vis last year there has been 50 bps net increase in the interest rates. Second is as more and more of the projects hit the maturity stage, the proportion of interest being charged of versus being capitalized is moving in favour of the interest being charged of.