Improved Cash Flow and Reduced Debt for Real Estate Developers in Q2
Despite a sluggish real estate market, most publicly listed builders reported improved cash collection and lower interest expenses during the second quarter. This positive trend is largely attributed to the handover of numerous projects to buyers.
DLF's Debt Reduction Strategy
DLF, India's largest real estate developer, aims to further reduce its debt burden by raising equity funds. In the recent past, builders required minimal collections to secure loans for construction. However, due to improved collections in Q2, several developers successfully repaid existing loans.
HDIL's Collection Surge
HDIL witnessed a substantial 22% increase in advances collected during the first quarter, reaching Rs 185 crore. The company anticipates this figure to further escalate by approximately 45%, reaching around Rs 300 crore, in the third quarter. The cash flow has demonstrated healthy progress over the last six months.
Project Handovers and Construction Spending
Experts attribute the positive financial results to a significant number of projects being handed over to buyers during this period. Construction spending experienced a substantial 20% year-over-year surge during the September quarter. Godrej Properties, for instance, handed over 650 flats in one of their largest residential projects located in Ahmedabad.
Developers Cut Financing Costs
Remarkably, even with increased construction spending, developers effectively reduced their financing costs. Several companies, including IndiaBulls and Puravankara Projects, reported decreased interest expenses primarily due to debt reduction.
Fundraising Initiatives
Developers are actively pursuing fundraising initiatives. Godrej Properties successfully raised Rs 700 crore in August of this year, enabling them to reduce their net debt from Rs 1,600 crore to Rs 1,200 crore. DLF similarly reduced its debt by Rs 900 crore through the sale of non-core assets. With a current debt of around Rs 19,500 crore, DLF plans to raise an additional Rs 1,000 crore through mortgage securities on two malls situated in the NCR region.
Overall Financial Performance
The September quarter saw an overall revenue growth of 15%, slightly lower than the 23% growth observed in the June quarter. However, net profits largely remained unchanged due to the increased construction costs.