Fundamentals of economy and market remain very solid: Ashok Kumar Tyagi

Leading property developer DLF said that there will be some impact from the increase in mortgage rates with some recessionary trends setting in, but the company expects the impact to be transitory.
"It would be naive to say that it will have no short-term impact but what we all hope is that the impact will be transitory and it will not have any lasting impact," chief executive Ashok Kumar Tyagi said during the Q1FY23 analyst call.

DLF reported a net profit of ₹469.99 crore during Q1 FY23 as residential demand continues to exhibit sustained momentum and high demand for luxury homes has been a key trend that is expected to continue.

"It is a dynamic position. However, the fundamentals of the economy and the market remain very solid. If you see the players who are gaining market share and reporting good sales, most of them are organised, with extremely strong balance sheets and hopefully extremely strong governance mechanisms," Tyagi said. "I think the challenges that we had in early 2010 should not be repeated for the most part, but there are some headwinds for sure."

On the company's preparedness for REIT, Tyagi said that most of the work is done.

"We are at a stage where the two shareholders press a button. I think in six to eight months, we can get REIT into the market. Now the key is when is a good time," Tyagi said.

DLF Cyber City Developers (DCCDL), the rental arm of the company, is a joint venture between DLF and Singapore's GIC.

DLF had hired Morgan Stanley, KPMG, and Shardul Amarchand Mangaldas & Co in February last year to help it prepare for a REIT listing.

"There are inherent pros and cons that I think both shareholders need to consider, and I think it's obvious that both shareholders may have different objectives," Tyagi said.

"The fundamentals of the REITs will stay very strong, including the fact that it gives an opportunity for inorganic expansions. We have had a very intensive discussion on whether we should change the perimeter of the asset portfolio. And finally, we have agreed that we should move all assets, including the entire development potential ones. Obviously, that does create a certain pressure on the financial metrics which the bankers have rightfully highlighted," Tyagi said. Currently, many of DLF's under construction rental assets are nearing completion and will be part of the REIT.

In the current fiscal, Downtown in Gurgaon will be ready, and in a year's time, Downtown in Chennai will be completed.

"We need to do it at the time when the market is most conducive for value expeditions. Luckily, neither of us needs to do it for liquidity and the most important thing is to ensure that we do it at a time when actually we can maximize the value," Tyagi said.

DLF generated surplus cash of ₹421 crore during the quarter, which led to further deleveraging and, consequently, the company's net debt at the end of the quarter stood at ₹2,259 crore.

"We opened with a net debt of ₹2,600 crore and you've seen this quarter again, we've dropped our net debt of upwards of ₹400 crore. So right from the beginning, we are not working on a number, but we are committed to bringing it down quarter on quarter," said Vivek Anand, group chief financial officer, DLF.