Parsvnath Developers' Debt Reduction Strategy
Amidst Rising Interest Rates, Firm Eyes Stake Dilution in Individual Projects
Parsvnath Developers Ltd, a New Delhi-based real estate firm, is exploring stake dilution in specific projects to mitigate its debt burden and maintain margins in a rising interest rate environment. This strategic move comes on the heels of a disappointing first quarter, with the company reporting a 16% decline in net profit to ₹712.9 million.
Quarterly Performance Highlights:
- Net Profit: ₹712.9 million (down 16% from Q1 last year)
- Net Sales: ₹3.65 billion (up 5% from Q1 last year)
Higher Interest Costs Weigh on Bottomline
According to Chairman Pradeep Jain, the decline in bottomline profitability was primarily attributed to increased interest costs and input costs.
- Interest Burden: Rose more than five-fold to ₹174 million
- Total Debt: Currently stands at approximately ₹17 billion, up from ₹10 billion last year
India's Rising Interest Rate Landscape
The recent hike in the key lending rate by India's central bank to a seven-year high has led to increased borrowing costs for developers. Banks have subsequently raised lending rates for customers to nearly a decade-high, impacting property buyers reliant on home loans.
Parsvnath's Mitigation Strategy
To combat these challenges, Parsvnath is focusing on debt reduction through equity dilution in selective projects, including its Special Economic Zone (SEZ) and hotel ventures.
- Average Cost of Borrowing: 12.85% (with a 20 basis point increase over the last three months)
- Current Borrowing Rates: 13.5-14% range
- Equity Dilution Talks: Ongoing with potential partners for due diligence, following the successful sale of a 30% stake in a Mumbai project to two real estate funds for ₹1.86 billion earlier this year
Market Impact
Parsvnath Developers' shares closed at ₹111.75, down 0.9% in a relatively firm Mumbai market that ended 0.5% higher.