Are cracks in DLF alone or is real estate sector suffering from strategic mistakes?

- Economic Times

5/28/12 7:57 PM

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Are cracks in DLF alone or is real estate sector suffering from strategic mistakes?
Kamya Jaiswal, ET Bureau Mar 11, 2012, 07.10AM IST

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Last September, Veritas Investment Research created a flutter when it predicted Kingfisher Airlines was on the brink of bankruptcy. A couple of weeks ago, the Canadian research firm claimed DLF is "a crumbling edifice." But this time, its analysis hasn't got the media and sector experts gasping. Most have shrugged off the claim that DLF shares are worth Rs 100 a piece as an exaggeration. As a stock analyst said, "It's the same old story." DLF is facing scrutiny from both Sebi and the Ministry of Corporate Affairs. There is a larger question at play though.
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Is DLF an outlier or are its alleged problems representative of the real estate sector? Are other developers also guilty of similar strategic mistakes? Here's a comparison of DLF's alleged weak points with five competitors that reveals fissures across the sector but confirms that the deepest cracks are in India's largest real estate company. Local Focus The Veritas report claims DLF's over exposure to Gurgaon is a risk, especially as that market is speculative. But others also have land banks concentrated in one or two cities. The only exception: Unitech. "Globally, real estate is a local business. Companies focus on specific areas and develop expertise in that particular market. During the economic boom of 2006-7, major realty companies did try to diversify. But after the slowdown, most went back to their core markets where they could maximise profit," says Anshuman Magazine, chairman and MD, CB Richard Ellis, South Asia Long Bust List

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Are cracks in DLF alone or is real estate sector suffering from strategic mistakes? - Economic Times

5/28/12 7:57 PM

Real Estate

DLF has exited many grand deals that regularly hit headlines. Says a sector expert who doesn't want to be named: "They go overboard in announcing big plans. So the duds end up generating a lot of buzz." The Veritas report lists several stalled expansion plans. But other developers have also exited projects, though launched with lesser fanfare.

DLF --> JV with Hilton to open hotel chain ends --> Silverlink Resorts up for sale --> Exits plans to build mega townships in Bidadi, Karnataka and Dankuni, West Bengal --> Exits plans to build a mega convention centre in NCR in 2009 Unitech --> Andhra Pradesh government scraps allotment of 1,750 acres of land to build a knowledge city --> Quits New Kolkata International Development (NKID) Pvt Ltd, a special purpose vehicle (SPV) formed to develop several large projects in West Bengal Oberoi Realty --> Shelves Goregaon Oberoi Educational Complex project --> No further progress on Oberoi's Adarsh Nagar Redevelopment Project Prestige Estates --> Prestige Sunnyside Residential Project in Bangalore yet to take off Debt Pile This one's a bummer for DLF. With debt of roughly Rs 22, 000 crore in its books last September, not just Veritas, other experts have also rung the alarm bell. Says a stock analyst who wishes to remain anonymous: "For the past couple of quarters, the company's cash flows haven't been enough to meet the interest cost of the debt. That is why, even though other developers have debt on their books, it is DLF we are most worried about." Rajiv Sahni, partner, real estate sector, Ernst &, India, says debt is not all bad: "If there are projects in the pipeline which generate additional cash flow in the immediate future, taking on some short-term debt can be handy." Shedding Flab year, India's second-largest developer, Unitech, announced plans to offload hotels, IT parks

http://articles.economictimes.indiatimes.com/2012-03-11/news/31143344_1_dlf-estate-sector-real-estate

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Are cracks in DLF alone or is real estate sector suffering from strategic mistakes? - Economic Times

5/28/12 7:57 PM

and SEZs to reduce its debt burden. DLF has been criticised for not formulating an effective strategy for reducing debt. But for the past few months, it has been offloading non-core assets at a brisk pace. Some of the recent and planned deals include:
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--> Sold IT SEZ in Pune to private equity firm Blackstone for Rs 810 crore. --> Sold a 28-acre plot in Gurgaon to developer M3M India for Rs 440 crore --> Sold 10.8 acres in Gurgaon to a Dubai-based investor for Rs 280 cr --> Sold stake in a 50:50 joint venture (JV) with Mumbai-based Ackruti City for over Rs 200 crore --> In talks to sell the wind power business to raise roughly Rs 800 crore
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http://articles.economictimes.indiatimes.com/2012-03-11/news/31143344_1_dlf-estate-sector-real-estate

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Are cracks in DLF alone or is real estate sector suffering from strategic mistakes? - Economic Times

5/28/12 7:57 PM

Readers' opinions (11)

Sort by: Newest | Oldest Shankar Venkat (Singapore, Singapore) 12 Mar, 2012 01:35 PM People in position of power do not want to let go. And Naik is typical of this syndrome for all the talk of Professional Management. He does not want to let go off L&T, and did not want Ravi Uppal as his successor. Instead he wanted an 'Yes' man, despite the fact that Ravi Uppal could have taken L&T stocks higher. Soma Visal (Chennai) 12 Mar, 2012 01:31 PM Generally, most of the realtors are said to be cheaters, in one way or the other. While booking, they promise heavens under which you can live ever happily. The project itself will take more time than assured to commence. During the progress of the project, many changes will be there. Nothing will neither be let known to the consumers, nor any concurrence requested. Nothing needed to elaborate regarding delivery schedules. No compensation will be paid for the delays. As there is no meahcnism to check out and warn the builders/alert the consumers, the consumers are always at the receiving end. This phenomena is not only in India. Cases of promoters running away after collecting considerable advances are also reported elsewhere. KVSKumar (Mumbi) replies to Soma Visal 14 Mar, 2012 06:22 PM It would more apt if put this way: GENERALLY MOST OF THE REALTORS ARE POLITICIANS OR THEIR BENAMIES. Am I right? Vijay (Gurgaon) 12 Mar, 2012 02:50 AM Govt should put some checks and balances in place. How could builder delay the existing projects and buy lands with the money they are getting by sale of existing projects. So many projects from Unitech are delayed. Why govt is not taking any action? hh (uae) 11 Mar, 2012 10:16 PM "N" No of agencies can scrutinise DLF, but nothing will come up, except a clean chit ! DLF have a strong political god father, Mr Wadhera ! How many thousand crores DLF looted from the public at the time of their public issue ? any of the agencies reported above are concerned ? Ramesh (Delhi) 11 Mar, 2012 08:37 PM Builders have reach to a point of no return. They need to improve their sales by lowering their prices and make it affordable to the common man. Just sitting on their land bank (valuation is questionable) and loans taken at cheaper rate from banks will not help them. They are still buying land banks instead of repaying the loan to the banks.All real estate buyer should hold their buying decision unless the prices are affordable. Credai is a cartel of builders. Their is no low for the end users. All agreements are favoring the builders. T.G.Ramachandran (Coimbatore) replies to Ramesh 13 Mar, 2012 07:02 AM I fully agree with Ramesh.There should b a regulator for reality sector but govt won't take any action, since many politicians r involved in shady deals.Affordable housing is the need of the hour and for that there need to b a constant drive against black money! READ ALL COMMENTS

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