RERA sales freeze drags down DLF Q2 profit by 94%, sales restarted

Real estate major DLF reported a sharp decline in its revenue and profit for the July-September quarter after it stopped taking new bookings due to the implementation of RERA in May.

The company’s net profit fell by 94% to Rs 12.57 cr in July-September quarter from Rs 204.60 cr a year ago. Even in the preceding Apr-June quarter, the company had seen decent profits of Rs 112 cr.

“Post the enactment of RERA by various States, the Company adopted a cautious approach by shutting down its sales in order to fully understand the compliance requirements of this new law. However, the Company continued with the execution momentum resulting in negative operating cash flows,” DLF said.

RERA or the Real Estate Regulation Act puts in place certain rules and regulations designed to prevent real estate developers from cheating their customers.

For example, the developer must deposit 70% of the total payment received from the consumer in an escrow account and can withdraw the money solely for the development of the said project.

The provisions of the new act were supposed to have come into effect in May; but were mostly implemented in the June and July due to lags at the level of state governments in terms of putting in the regulatory and compliance infrastructure.

When a developer stops making new sales, its revenue drops as it is able to get money from existing customers only, and not from new customers.

DLF’s revenue fell 21% to Rs 1,751 cr in July-September, both when compared to the three months before it and the year-ago period.

The cash squeeze also seems to have hit the company’s developmental expenditure.

Direct costs of development — money spent on land, plots constructed properties, development rights and others — fell sharply to Rs 508 cr during the three months from Rs 864 cr in the previous three months and Rs 733 cr in the year-ago period.

DLF said it restarted new sales on Nov 1, but implied that the ongoing quarter will also be impacted.

“The financials will continue to be impacted as new sales bookings will get reflected with a lag of a quarter – in the financials in Q4. Short term pain is expected to be vindicated by long term gain,” it said.

Operating profit in July-September period fell to Rs 950 crore, a decrease of 19% as compared to Rs 1,067 crore in the Q1FY18. In the previous quarter, it had EBITDA of Rs 1,067 crore.

The company said it had 19 million square feet under construction, out of which approximate 8 msf is ready to be
handed over.