(The Hindu Business Line 5th June 2008)
DLF appears to have adroitly managed the realty slowdown in 2007-08 through a combination of higher sales in the mid-market segment and a better product mix. On a consolidated basis for the year ended March 2008, sales jumped over five-fold to Rs 14,229 crore. Net profits multiplied four-fold. The proportion of revenue arising from sale to associate company - DLF Assets has seen a reduction.
Increase in volume as well as superior pricing power in certain segments improved DLF’s operating profit margins from 56 per cent last year to 68 per cent now.
Further, total operating costs as a percentage of sales dropped from 43 per cent last year to 31 per cent for FY 2008. However, change in product mix rather than cost savings may have prompted the decline. In 2007-08, DLF had more sales booked under the home segment, than retailing or office space. The cost per square feet is often lower in the residential segment. Similarly, the mid-income segment, which dominated the sales booked in the year, also explains the relatively lower costs incurred. Going forward, the product mix would decide the costs as well as operating margins for the company. For the full year, the company sold over 20 million square feet across business segments and leased about 5 million square feet of retail and office space. The company managed its debt well with a decline in finance costs. Strength in home market
DLF increased its presence in the mid-income home market. However, much of the volume came from new cities with the company aggressively pricing properties. The weighted average sale price in the mid-income segment dropped from Rs 3,556 per sq ft in the third quarter (when it started booking sales in this segment) to Rs 3,036 per sq ft. Aggressive pricing may be a pre-requisite for the company to capture new markets, especially at a time when the property prices in a number of regions have been softening. However, volumes are likely to make up for the discounts offered in the middle-income category. Further, the company has demonstrated its pricing strength in the luxury segment as reflected in the price increase in this segment, over the last four quarters.Retail, office space
The retailing segment saw sedate performance as many of the projects are still under construction. On the price front too, the company’s average rate booked on buildings sold as well as leased have seen a dip in Q4 as against Q3. On the positive side, the prices of retail space in non-metros have improved significantly. As projects under construction are higher in non-metro regions, the company may witness better numbers in the retail segment in the coming quarters.
The demand for office space remained robust with the client mix changing from IT sector to other corporates. With higher lease rates, especially in super metros of Delhi Metropolitan Region and Mumbai, the proportion of leased space has been increasing over the last few quarters. Of the area under construction, office space accounts for the highest portion, suggesting that the company may be looking to capitalise on the demand and strong pricing power it currently enjoys in this division.
DLF appears to have adroitly managed the realty slowdown in 2007-08 through a combination of higher sales in the mid-market segment and a better product mix. On a consolidated basis for the year ended March 2008, sales jumped over five-fold to Rs 14,229 crore. Net profits multiplied four-fold. The proportion of revenue arising from sale to associate company - DLF Assets has seen a reduction.
Increase in volume as well as superior pricing power in certain segments improved DLF’s operating profit margins from 56 per cent last year to 68 per cent now.
Further, total operating costs as a percentage of sales dropped from 43 per cent last year to 31 per cent for FY 2008. However, change in product mix rather than cost savings may have prompted the decline. In 2007-08, DLF had more sales booked under the home segment, than retailing or office space. The cost per square feet is often lower in the residential segment. Similarly, the mid-income segment, which dominated the sales booked in the year, also explains the relatively lower costs incurred. Going forward, the product mix would decide the costs as well as operating margins for the company. For the full year, the company sold over 20 million square feet across business segments and leased about 5 million square feet of retail and office space. The company managed its debt well with a decline in finance costs. Strength in home market
DLF increased its presence in the mid-income home market. However, much of the volume came from new cities with the company aggressively pricing properties. The weighted average sale price in the mid-income segment dropped from Rs 3,556 per sq ft in the third quarter (when it started booking sales in this segment) to Rs 3,036 per sq ft. Aggressive pricing may be a pre-requisite for the company to capture new markets, especially at a time when the property prices in a number of regions have been softening. However, volumes are likely to make up for the discounts offered in the middle-income category. Further, the company has demonstrated its pricing strength in the luxury segment as reflected in the price increase in this segment, over the last four quarters.Retail, office space
The retailing segment saw sedate performance as many of the projects are still under construction. On the price front too, the company’s average rate booked on buildings sold as well as leased have seen a dip in Q4 as against Q3. On the positive side, the prices of retail space in non-metros have improved significantly. As projects under construction are higher in non-metro regions, the company may witness better numbers in the retail segment in the coming quarters.
The demand for office space remained robust with the client mix changing from IT sector to other corporates. With higher lease rates, especially in super metros of Delhi Metropolitan Region and Mumbai, the proportion of leased space has been increasing over the last few quarters. Of the area under construction, office space accounts for the highest portion, suggesting that the company may be looking to capitalise on the demand and strong pricing power it currently enjoys in this division.
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