The slowdown in the Indian real estate market has started taking its toll on the country’s largest player registering 93 per cent fall in its consolidated net profit for the quarter ended 31 March 2009. So far all the real estate companies have been complaining of plummeting demand of their products, but DLF’s falling profit was perhaps a sign of the reality-bite of the slowdown, for the developers.

DLF’s consolidated net profit decreased to Rs159.05 crore in the fourth quarter of FY09 from Rs 2176.82 crore in the year-ago period due to sharp decline in demand for its housing and commercial properties. The consoli-dated revenue in quarter fell by 69 per cent to Rs 1351 crore as against Rs 4372 crore in the same period previous fiscal.

For 2008-09 financial year, DLF’s net profit decreased by 41 per cent at Rs. 4629 crore compared to Rs 7812 crore in the previous fiscal. The revenue slipped by 28 per cent to 10,541 crore, in FY09 from Rs 14,684 crore in FY08.

Demand evoparates in all segments...

“In a tough economic environment over the last quarter, the company saw demand evaporate in all segments of real estate business – residential and commercial, sale or leasing,” the company said.

The company announced that it has made an exit from its large township projects in Bidadi (Karnataka)and Dankuni (West Bengal). As a result of this, DLF’s total developable area has come down significantly to 425 million sq ft from- 751 million sq ft earlier.

DLF also said it “is estimating a revenue loss of Rs 688 crore due to one time price resets and other benefits to customers.”
The decline in yearly figures for 2008-09 was “after, adjusting for losses contributed by non-real estate-businesses, like DLF Pramerica Life Insurance, Hotels and Power, amounting to Rs 163 crore,” DLF said.

Exit from non-strategic businesses…

DLF is contemplating making an exit from long gestation projects such as hotels.

DLF said it will hiveoff the wind power business to a wholly owned subsidiary.

On the debt, DLF said it has converted its short-term debt of Rs 3000 crore into long-term mainly by securitising cash flows. The company, which had an outstanding debt of Rs 13,958 crore as on 31 March 2008, said it continued its focus on cost reduction in all areas and maintained tight focus on cash flows.

“Real estate sector bore the brunt of instability and loss of confidence in the local economic environment for last six months. This has, hopefully, stabilised and in line with our earlier projections, real estate sector should start witnessing recovery from third quarter onwards,” DLF Vice Chairman Rajiv Singh said.

During the fourth quarter, revenue from DLF Assets Ltd (DAL) which has been promoted by billionaire K P Singh to acquire commercial projects of DLF, was Rs. 322 crore as against Rs 1845 crore in the year-ago period. It received over Rs. 800 crore as advance from DAL during the quarter. DAL owed about Rs 5000 crore to DLF till 31 December 2008.

Additional tax of Rs. 400 crore

Making the situation more critical, the Income- Tax department submitted its final report of a special audit of the company’s 2005-06 account asking for an additional tax of up to Rs.400 crore. The tax department, which had last year ordered a special audit of the 2005-06 financial year accounts of the realty firm, found about Rs 1200 crore as additional income.

According to DLF, it had adopted the Percentage of Completion Method (PoCM), prescribed by ICAI, recognising its revenues and consequently profits from the financial year 2005-06, prior to which all accounts were prepared in accordance with Conveyancing As per the PoCM method, a company has to recognise the revenue gain on how much percentage of the project it has completed in a fiscal and accordingly the income would be taxable for that particular year. However, in the Conveyancing Method the revenue generated is recognised as and when the property was registered in the name of a buyer.

DLF’s employee count came down to 2882 as on 31 March 2009, from 3700 exactly a year ago, a drop of 22.1 per cent.

DLF has been trying for quite a long time to overcome demand slump and credit crunch, but unfortunately the problems are getting graver day-by-day. Is DLF really becoming a sinking ship now?