Improve cash flow, lower interest costs

Despite a weak property market, most listed developers reported better cash collections and lower interest expenses in the September quarter, as they handed over several projects to customers and reduced or refinanced debt.

Some companies such as DLF Ltd, the country’s largest developer, are planning to cut debt further by raising equity.

Improving cash flow

In a break from the past trend, where low collections required builders to raise loans for construction expenses, developers repaid loans in the July-September period, thanks to improved collections.

For instance, advances collected by Housing Development Infrastructure Ltd (HDIL) increased around 20 per cent compared with the June quarter to Rs 185 crore. “We expect collections to increase 40 per cent to around Rs 300 crore in the December quarter,” says Hariprakash Pandey, Vice-President-Finance and Investor Relations, HDIL.

“Cash flow for the first six months (of the fiscal) was the best ever and it increased by over 20 per cent vis-à-vis the corresponding period last year,” says J. C. Sharma, Vice-Chairman and MD, Sobha Developers Ltd.

One possible reason for cash flow improvement, according to industry executives, is that many projects were handed over to customers during the period. Construction spends increased an annualised 20 per cent during the September quarter.Godrej Properties Ltd handed over the first phase of around 600 apartments in its largest residential project, Garden City in Ahmedabad, launched in 2010. Even as builders spent more on construction, they managed to hold down financing costs. Total interest costs for eight large listed real estate players remained flat year-over-year, after rising in the last five quarters. Select players such as IndiaBulls Real Estate Ltd and Puravankara Projects Ltd reported a fall in interest expense due to debt reduction.

Developers also refinanced their loans to lower cost. Sobha Developers’ average borrowing rates fell to 12.7 per cent in September, from 13.5 per cent as of April. HDIL said it raised loans with tenures of eight-to-10 years at around 12.5 per cent interest to replace short-term debt.

Raising funds

Developers are also looking to raise funds. Godrej Properties raised Rs 700 crore in August through a rights issue, which helped it reduce net debt to around Rs 1,200 crore, from Rs 1,600 crore in June.

Mahindra Lifespace Developers Ltd, which has a debt of around Rs 1,400 crore, plans to raise Rs 400 crore from the secondary market through qualified institutional placement. DLF reduced its debt by around Rs 900 crore during the quarter through sale of non-core assets and internal accruals. Still, the company’s debt is around Rs 19,500 crore and it plans to raise about Rs 1,000 crore through commercial mortgage-backed securities on two malls in the national capital region. Overall, the September quarter results of nine leading players showed a 13 per cent revenue growth year-on-year, compared with 23 per cent in the June quarter. Net profits, however, remained mostly flat, as margins were dented by higher construction costs.

meera.siva@thehindu.co.in