Top listed developers in India have been successful in reducing their consolidated net debt levels by over 40 percent over the last three years through cost efficiencies by reducing overheads, generating operating cash surplus, asset sales, and capital raising.
The top ten listed developers are DLF, Godrej Properties, Oberoi Realty, Macrotech Developers, Phoenix Mills, Prestige Estates, Sobha Ltd, Brigade Enterprises, Sunteck Realty and Mahindra Lifespaces.
Among the main reasons for the steep fall in debt is the good balance sheet discipline that companies have been exercising through a 10-15 per cent reduction in their overheads, according to broker ICICI Securities.
Data show that aggregate net debt levels of the top ten listed developers fell 42.7 per cent to Rs 24,938 crore between end of FY20 and the third quarter of FY23. This excludes listed real estate investment trusts and the debt of DLF Cyber City Developers, the commercial arm of DLF Ltd. If DLF Cyber City’s debt is included, then the aggregate debt of the companies at the end of December 2022 comes to Rs 43,332 crore — a fall of about 20 per cent.
Companies that were highly leveraged such as Macrotech Developers, Sobha Ltd, and DLF took advantage of the upsurge in sales to pay down their debt. According to Jefferies, operational cash flows of the companies are estimated to have risen nearly 2.5 times between FY21 and FY23.
The companies have also maintained discipline by following through on their execution and ensuring that the quality of their pre-sales are sustained through actual end-users. By utilising their existing land banks, opting to buy land from developers struggling with cash and entering into joint development agreements, the listed developers have ensured a conservative approach to cash usage.
Some of the companies such as Sobhahave been monetizing surplus land and assets through asset sales and using the proceeds to reduce their overall leverage. Raising funds through qualified institutional placements and non-convertible debentures or dilution of stakes at the level of special purpose vehicles have helped the companies in bolstering their balance sheets. The low interest rates during 2020 and 2021 helped the developers in keeping their costs of borrowing low.
These factors have resulted in leaner balance sheets for listed developers and put them in a strong position to invest in growth in the medium-term, giving them the headroom to accelerate the pace of consolidation in the sector.
DLF and Lodha intend to further bring down their debt levels over the next couple of years and focus on their core markets. DLF is restricting itself mainly to expanding in the National Capital Region, while Lodha is also focused on the Mumbai Metropolitan Region. Though Godrej Properties and Prestige Estates are expanding pan-India they are keeping a close watch over their balance sheets.
