DLF has announced its third quarter numbers. It has posted consolidated third quarter net profit of Rs 2145 crore versus Rs 2018.6 crore, a growth of 6.3% and net sales of Rs 3,598.4 crore versus Rs 3,249.9 crore, up 10.7% (QoQ).
Speaking to CNBC-TV18, the DLF management said that office trust listing has not been postponed in Singapore. It is hopeful of the listing in the current quarter.
The company is seeing gross margins of 35% in FY08, the management said.
The company’s promoters will forego all their interest in properties listed on the Singapore Stock Exchange. The company has earned Rs 2000 crore has from the sale of assets to DLF Assets. 50% of the company’s revenues are from DAL. The contribution of DAL to the company’s revenues will come down in subsequent quarters, the management clarified.
The DLF management including Rajiv Singh, Vice-Chairman, TC Goyal, MD, Rajeev Talwar, Group Executive Director and Ramesh Sanka, Group CFO, spoke to CNBC-TV18, in an exclusive interview:
Q: Has the Office Trust listing been postponed?
Singh: It has not been postponed. The process continues and we are hopeful of receiving the final clearances in a short period of time. Our bankers still advise us that the listing should be possible even in turbulent markets. So, I do hope we will do it in a short order of time. There is no delay as far as we are concerned.
Q: Has it been delayed or deferred because the prices have come off?
Singh: No deferment, no delay.
Q: So, will it happen in the current quarter?
Singh: We hope so, I can’t guarantee that. But we will try for that.
Q: There has been some expectation from DLF investors that if indeed DLF Assets exits some properties with the IPO, then there will be some flow through to DLF shareholders?
Singh: I would like to confirm that point for the benefit of all investors that the complete flow through would go to the benefit of DLF Ltd and all its shareholders. The promoters shall forego all their rights and interest including appreciation to the extent it takes place in the value of properties. So, there is 100% flow through to investors.
Q: Roughly speaking, what will be the magnitude of these flows?
Singh: That will depend on the pricing, which will be finally decided by our bankers, when we go for the listing.
Q: Even a ballpark?
Singh: It is difficult to say, as you know the Singapore process. We have been very cautious with any statements that we make. We can let the people know about this maybe in a few weeks time, once the bankers advise us better.
Q: Has there been any reason to re-evaluate the pricing of the IPO because of the turbulence in the market off late?
Ramesh Sanka: No, this is a product, which is stable. It is a yield-based product and won’t fluctuate with respect to the market prices.
Q: How much of the current quarter’s revenues have been from sale to DLF Assets?
Rajeev Talwar: Well I am sure he will be giving you the figures right now. I’ll let Ramesh answer that right away.
Ramesh Sanka: We have approximately a sale of Rs 2000 crore to the DAL in this quarter.
Q: Which as a percentage of revenues works out to what compared to last quarter?
Ramesh Sanka: Generally the better way is to look at the PBTs. We are at around 48% coming from the others.
Rajiv Singh: 50%+ this quarter is from DAL, and somewhat under 50% is from other operations.
Q: Is that generally the proportion you foresee for the coming quarters?
Rajiv Singh: No, I think the proportion will come down. I just like to sort of correct two statements. I think you made a statement in the beginning about the sale to Merrill Lynch not having taken place.
Q: Or has it?
Rajiv Singh: Yes, it has taken place but I think the expectations of the investment community in terms of the one-time premium earned by us were possibly overstated. The total net gain arising from all divestment transactions is about Rs 160 crore. The balance will come through profits on disproportionate basis as and when sales take place.
Q: How will it be staggered?
Rajiv Singh: In the last quarter, in fact specifically in the last two-months, we have had a tremendous launches across the country in our Homes programme and I think it vindicates our strategy completely that in times such as now, we are finding a very strong response because we have put the product in the right pricing, right sizing and right location. We are today able to sell in excess of 3,000 apartments in the last two-months across the country. This is something, which at least for DLF is a record and for everybody else, it must be a very large number. The flow through of these now will start showing up possibly little bit in this coming quarter but the big flow through will start taking place in the quarters ahead.
Q: Can you break that 3,000 up roughly between markets?
Rajiv Singh: About 2,000 odd is in Chennai and about 600 plus is in Kolkata. A couple of 100-units are in Kochi and a couple of 100 units in Indore. We expect to almost double this number within this quarter itself and therefore we should end this quarter with about 6,000 odd apartment units having been sold across the country. We also have very large launches coming up in North India - both in Panchkula as well as in New Gurgaon. So we are very hopeful, confident and our model is now tested. I would also like taking this opportunity to say that we are doing this by addressing the middle-income segment; but more importantly, the actually user. We have therefore chosen to voluntarily put some kind of restrictions on buyers. We do not sell more than one per family and we do not allow a resale for the first year.
Q: You are actively filtering out investors?
Singh: Well yes. We are not allowing at resale for one-year. We cannot filter out investors. But we have tried to filter out speculators.
Q: What is the average rate since you spoke about the mid-market?
Singh: Average rate is about Rs 3,000.
Q: In Chennai?
Singh: In Chennai.
Q: What is the state of the market in top two or three markets that you operate in? What is the state of rates in those markets, any softness visible?
Goyal: These are stable. Prices are sounding very well. There is absolutely no decline in any sector.
Q: In NCR-Gurgaon?
Goyal: Prices are very stable. There is absolutely no downward.
Q: You have had some new launches in Gurgaon as well?
Goyal: Yes, we are doing it very soon. In fact, we will be launching it, in the next 10 days, in New Gurgaon in a very big way. We will be approaching the end users directly with those very conditions.
Large corporate houses and many other corporates are approaching us for bulk supply of 100-150 flats each for their executives. That is again a tremendous response, unexpectedly coming forward.
Q: They don't qualify as investors in your eyes?
Goyal: No, they are not, because they are the actual users. They are taking it for their executives. We are in advanced stages of negotiations with them.
Q: There is some apprehension that because of the collapse in the stock markets in the last few weeks, it might filter through to some amount of demand softness. Have we seen anything like that happening in the last couple of weeks?
Talwar: The figures are totally to the contrary. There is a strong surge in the Indian economy as such. Maybe the stock markets are reflective of a phenomenon that shouldn't really take place in India. It is a very strong economy, and we do not see any softening of demand. The last quarter has been very good. This quarter promises to be even better for demand, especially for middle-class and middle-income group. We are sure that the premium and luxury segments do uphold their own values.
Q: Can you just talk about different segments-residential, office, or rental? What kind of margin profile have you seen in this quarter?
Sanka: The point is that some of the products are on a rental basis. Obviously, it will be difficult to put a percentage because this is a mix of both. We do look at the company as a whole.
If you want to look at volumes, the commercial and retail segments continue to be our focus and they are going ahead strongly. This is in addition to the volumes that we are achieving on residential in the last couple of months.
Going forward, we will still come down to the same 33% in all these three segments. Presently, the profits and sales are more towards commercial.
Q: Do you see any softness in margins, because of your revenues coming from the mid-market segment, where rates typically are a bit lower?
Sanka: No, it is a time period game because you will be entering into the mid market segment. Over a period of a few years, some portion of that segment will mature enough to go into the luxury segment or the slightly higher-end segment.
The second is that because we are doing it in a large scale, the economies of scale really play well, both on the land and construction cost. So, we don’t expect margins to fall because of this. In these products also, we see a margin of almost 40% to 50% plus.
Q: How are things progressing on the luxury end? You have got launches coming up in Goa, Kasauli, Panchkula. Are those on the higher end?
Talwar: There is a definite market building up in India and that is totally reflective of the strong fundamentals of the Indian economy. The commercial office space and retail space would see a large churn out, which will uphold the margins of the company itself.
Q: The 6,000 homes you spoke about, could you break that out - where do you expect most of those to come from?
Singh: I will say a couple of things at this juncture. As far as the middle-income homes go, we are fortunate that our margins are not as low as people may fear, despite the pricing being more competitive. That’s the strength our company brings to the table.
An important point I would like to also mention here - you raised a question about “prices dropping”, I think like in New Gurgaon, when we make our launch in the next fortnight or so, the issue is going to come out that prices have dropped, but that’s not true. We have product lines in Gurgaon where prices are rising and we have product lines in New Gurgaon where prices are going to be low - that’s by design.
Q: Where would those prices that you are talking about be?
Singh: We are going to be at least 25-30% below competition.
Q: In absolute terms, what would those rates be?
Singh: In absolute terms, I am preempting some thunder, but it will roughly be around somewhere south of Rs 3,000 or very close to Rs 2,500 square foot.
Q: With no compromise in quality?
Singh: No compromise in quality.
Q: Why are you doing that because it’s a market disruptive kind of a move?
Singh: No, it is not disruptive. We make our money on that. The question is that if we make our margins on every product - on the price and the strategy is being employed, we will make our worse margins as we have forecasted between 35-40%.
Therefore, that’s our business model. We don’t need to make more money on that product. We have huge volumes to sell and we will make our money through volumes.
So basically, people can come and say that these guys are dropping prices or the prices are dropping - I don’t thinks that’s correct. A new market segment has been entered into. It’s going to open up huge volumes and it will not come at the cost of our luxury product. While we do this, our luxury product prices will firm up and only increase because Gurgaon as a city needs to have a balance of all kinds of population. Now we are trying to bring the middle-class back into Gurgaon, which was its strong hold in the first place.
Now secondly, you asked the question about the breakup. Breakup-wise about 3000 units will be in Chennai. Kolkata will be almost finishing up at about 750-800 units, Cochin will grow to about 500-odd units and the balance will be about 2,500 units in the north; most of it in Gurgaon. We are attempting to do something in Panchkula, I don’t know if we can actually squeeze through in this quarter or not. If not now, it will be early next quarter.
Q: What are you on track for - I know you have got a target of 50 million homes by 2011? By 2009, do you think you can do between 25-30 million?
Singh: Yes, can we put this on; it is not 50 million homes. I think I don’t want to create higher expertise in our view. 50 million square feet is the development that we want to do. We expect our company’s delivery volume to hit about 25 million square feet by 2009. We expect our company’s delivery volume to cross 30 million square feet by 2010- delivery volume. We expect to reach our order intake volume of about 50 million square feet sometime next year.
Q: You are completely confident that all this can be absorbed by the market?
Singh: It’s been absorbed. This question if you recall was asked earlier - earlier we have been criticized for being too dependent on offices and we have being criticized for being too dependent on retail. Now we have gone through the middle-income housing - we again demonstrated success there. We are extremely confident and I am confident. If you would have had asked me this question three-months earlier, maybe the question was- somebody could have said show it, prove it. Now that the result is there, you have your bureaus in all parts of the country it’s interesting to find out. My information is that we are trying very hard to avoid speculators appealing to actual buyers and what we deliver to them will be of a standard where they feel they have got even a better deal than they think they have today.
Source: http://indiaearnings.moneycontrol.com/sub_india/compnews.php?autono=323706
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