Will luxury homes solve DLF's massive debt problem?

India's biggest real estate developer, DLF, plans to focus on building luxury homes and continue selling non-core assets to reduce debt, the company said late on Wednesday as it announced a 39 percent drop in net fourth-quarter profit.

DLF, which builds homes, offices and retail centres, is among several Indian developers struggling to reduce debt and improve profitability as high interest costs and a faltering economy weigh on balance sheets.

A Mint report on Monday stated that DLF plans to open two high-end shopping malls in the Delhi NCR region by 2014. The report also quotedDinaz Madhukar, vice-president of DLF Emporio saying, "We are seeing a lot more demand and interest in the Indian luxury market coming from countries like Italy, France, Singapore, United States.We want to accommodate brands that we don't have space for now at Emporio."

GDP was 6.1 percent in the December quarter, the lowest rate in almost three years.

 Will luxury homes solve DLFs massive debt problem?

DLF is among several Indian developers struggling to reduce debt and improve profitability . Reuters

"We expect the current economic and business environment will continue to stay challenging for the next few quarters," DLF said in a statement late on Wednesday.

The Delhi-based developer reported consolidated net profit of Rs 220 crore for the quarter ended March, compared with Rs 344 crore a year ago.

Revenue was down about 2 percent at Rs 262 crore.

Analysts on average expected the company to post net profit of Rs 280 crore on revenue of Rs 235 crore.

But it is DLF's debt of aboutRs 22,725 crore as of March 2012 that has investors most worried.

Since 2007-08, DLF's interest expense has jumped nearly sixfold and was Rs 171 crore for the fiscal year that ended March 2011. Over the same period, net profit tanked 80 percent to Rs 154 crore.

In addition, the property sector has witnessed a significant slowdown in home sales to 23 percent of new launches in 2011, according to Delhi-based data firm PropEquity, stymieing cash flow and making it harder for developers to service loans.

The report also highlighted the trend quoting Pankaj Renjhen, managing director, retail services, at the Indian unit of real estate consulting firm Jones Lang LaSalle (JLL) who said that there is a strong demand for luxury retail spaces, preferably in malls.

Agencies

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Updated Date: Dec 20, 2014 08:51:12 IST