This target was achieved through a combination of 80-160 basis point cost of debt reduction, 20-40% reduction in corporate overheads from pre-Covid levels, surpluses operating cash flow, asset sales and capital increases either via the QIP channel or via dilution at the SPV level.
Companies such as DLF, Sunteck Realty, Sobha and Brigade relied on the organic path to reduce their level of net debt in FY21 while Oberoi Realty was able to maintain its fortress balance sheet which had a low debt level even before Covid, according to the report. .
“At the start of the first wave of Covid on March 20, there were cash flow issues for developers due to the complete shutdown across India. However, developers listed in our hedging universe (ex-REIT) relished the “debt regime”. Going forward, with tighter balance sheets, we believe listed developers will continue to invest in growth and gain market share, ”the report states.
As the entire real estate industry in India, especially the unlisted space, continues to struggle with high cost and amount of debt, the balance sheets of listed developers have become leaner and place them in a strong position to invest for medium-term growth and is likely to accelerate the pace of consolidation in the sector.
Few companies such as Godrej Properties, Phoenix Mills, and Brigade Enterprises raised capital through the QIP channel from March 20 to June 21 to cushion against any protracted Covid-related impact and also to keep a war chest ready to be. used as capital growth when sentiment improves significantly.
Private equity also continued to be a preferred mode of fundraising as Prestige Estates sold a large portion of its operational offices and rental assets to the Blackstone Group to significantly reduce debt levels while Phoenix Mills sold diluted its stake in its Pune and Mumbai (Kurla) shopping centers and offices at GIC PE and also secured new commitments from the Office for investments in its Island Star, Bengaluru SPV and greenfield Kolkata shopping centers .
Macrotech Developers (Lodha), listed in the first quarter of FY22, was able to reduce its company’s net debt in India from 36 billion rupees in the first quarter of FY22 to 125 billion rupees through a mixture of IPO products of Rs 24 billion and repayment of Rs 16 billion in loans to promoters.
“As per the stated intention of the majority of the developers in our cover universe, although they have protected their balance sheets during the harsh time affected by Covid, they will resume investing in new plots of land wisely to develop their activity over the next three to four years. However, unlike previous cycles, they have no intention of gorging on land and will be selective in purchasing land and will seek to stagger payments as needed. possible and take advantage of the stress in the market, ”the report says.
Companies such as DLF and Lodha will seek to further reduce their debt levels in FY22-24E, while Godrej Properties intends to invest an additional $ 1 billion in FY22-23E to acquire new plots of land as part of its counter-cyclical land banking strategy.
DLF’s (ex-DCCDL) net debt fell from Rs 1.4 billion quarter-on-quarter to Rs 47.4 billion in the first quarter of FY22, compared to an overall reduction of Rs 3.8 billion in the quarter. during fiscal year 21. The company targets a further reduction in debt levels organically in fiscal years 22-23E through the improvement of the operating surplus of devco activities and a structural reduction of general treasury costs (down 41% year-on-year in fiscal 21) and lower interest costs.
For DCCDL, the net has edged up after Covid over the past five quarters as the company made investments of Rs 10 billion in the same period and also acquired a residual stake in One Horizon Center and rentals of retail were down 46% year-over-year due to lease waivers due to Covid.