How deep is the problem? You have earlier talked about a 25% drop in sales volume for DLF and 50% for the entire sector.
There will be a substantial decline in volume. But 25% or 50% drop I referred to was before the RBI went in for fresh round of rate cuts. The RBI's move will have a positive impact on the sector.
The entire industry is looking to government to mitigate the impact of global downturn on India . What are your expectations?
The government needs to take three important steps. First, bring down interest rate for home buyers . Second, ease credit for developers and third, change definition of real estate. Once home loan rates come down to 7-8 %, it will spur residential market. At present, interest rates are too high for home buyers. Restrictions on credit flow to real estate must go. We pay 3% extra on debt compared to our peers in other sectors.
There is restriction on ECBs in real estate, which must be eased. We are not standing for speculative real estate. But actual users must get finance. Real estate as of today also includes hotels. And if we were to borrow at 16% to build hotels , the projects will never be viable.
There have been a lot of speculation about DLF's joint venture with international hotel chain Hilton. Is the JV under stress?
There is no issue on joint venture with Hilton. Land investment is largely over and now we are seeking project financing. The joint venture will build four hotels, while DLF has management contract with Hilton for around 40 properties. We anticipate financing challenges and that's why hotel projects are likely to be delayed by 6-9 months.
We have a vision for 25,000 rooms. Even if we were to build 1,500-2 ,000 rooms every year that would mean an investment of Rs 500-600 crore every year. Our first hotel will be operational in the first quarter of next year.
Every depressed market throws up some opportunity. How well placed are you to take advantage of that?
We are prepared to look at all opportunities. But we won't go for something just because it's cheap. Our land prices are still cheaper and the so-called distressed properties may not necessarily be attractive. We are not financiers, but builders. Our interest lies only in those projects, which offers scope for value creation. Having said that, there are some gaps in our portfolio and we would be open to acquiring such assets, which are hard to replace, possibly in Mumbai or NCR.
How has the current economic scenario impacted the pace of your project execution?
External events have not allowed us to move at a pace we would have liked to. But we haven't slowed down anything consciously. If interest rate goes down, market will move much faster. Our projects, however, are coming up as per schedule.
The slowdown has forced several MNCs to cut down on their office space requirement. Have your clients started backing out of their commitment or shrunk their requirements?
No company has backtracked on its commitment so far with us. But in the last 60 days, there is a reluctance among companies to commit office space, even though the level of dialogue is very high.
DLF's receivables from promoter group company DLF Assets have been rising. Meanwhile , DAL has been unable to raise additional funds to pay back to DLF. Analysts see this as a major constraint for DLF's cashflow and future projects.
DAL is 40% funded at present. In the next two and a half years, its funding requirement would be around $2 billion. It would have around 10 million sq ft of ready space by March '09, which will fetch the company a net rental of over Rs 600 crore. We will be able to raise debt on account of this rental to pay back to DLF.
Analysts have been critical of your move to buy back shares, saying it was time to conserve cash and use it for execution of projects rather than share buyback...
Analysts haven't understood our business model well. That's why they are critical. I still think buyback is a good move. Although, we will go slow on buyback as we are cautious due to external environment.
Around 400 employees left in just one quarter. Is it retrenchment or attrition?
We have not laid off any employee. People have left on their own. After increments, people tend take a view on what they wish to do. And that's why the number of people who have left looks big this quarter. But if you analyse this you will find that a major chunk of those who left are trainees.
What's your gameplan for retail?
We remain focused on real estate. Our intention is to bring high quality retailers to our malls. We are happy if they come on their own. We are happy if they have some local partner. But whenever the retailers want to engage with us, we are happy to do that. We don't want to compete with our customers.
So far, we have seven to eight tie-ups in place with retailers. We are also in talks with a foreign retailer for multibrand retail. But we would wait for FDI regulation to ease before we take-up multi-brand retail.
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