On Monday, India’s richest builder Kushal Pal Singh became the country’s third trillionaire in rupee terms as the share price of DLF, his flagship company, soared. It was a day when DLF’s total market cap overtook Infosys’. But even as Mr Singh joined the elite club with the Ambani brothers, his company has another story which is masked by stunning profit numbers.
In the first quarter, DLF recorded a net profit of Rs 1,524 crore. The figure, however, appears less impressive on a second look. The reported numbers are only ‘accounting profits’ that have not translated into an equivalent amount of ‘cash flow’ into company’s books. The company continues to work on negative cash flows.
During the quarter, the company reported a negative cash flow of Rs 2,270 crore, on account of sundry debtors and increase in inventory. According to the company’s quarterly filings, sundry debtors shot as much as 150% during April-June this year and accounted for over nearly three-fourth of its consolidated net sales during three-month period.
This shows the company follows a policy of advance booking for its properties. While almost all real estate developers do this to show a higher topline, however, in DLF’s case, the number seems to be abnormally high.
In fact, if not for the IPO proceeds, the company would have faced a crunch. IPO proceeds accounted almost the whole of company’s closing cash balance at the end of the first quarter. DLF had raised Rs 9,625 crore from the primary market last month.
The company, however, declared a generous 100% dividend for all its shareholders (equivalent to Rs 340 crore), including the new IPO allotees. The question arises whether the company is arranging the payout from the IPO proceeds.
A closer analysis shows that sundry debtors and increase in inventory accounts for close to 85% of the reported net sales of Rs 3,074 crore. The point is: how much cash profit has been realised from the balance sales amount? This means, out of the huge net profit shown, only a small portion would actually be hard cash realisation.
Meanwhile, the stock has reamained in news. DLF’s successful bid for the Dwarka convention centre pushed up the scrip by almost 5%. The actual growth from this would, however, come only by FY10 and FY11. DLF is India’s largest real estate company and owns development rights of 574 million sqft real estate, of which 51% is in National Capital Region (NCR) and 23% is in Kolkata.