NEWSMAKER. Apex court ruling spooks DLF stock

Shares of realty major DLF were down 3 per cent after the Supreme Court on Wednesday instructed DLF to ‘pay’ the penalty of ₹630 crore.

The company had earlier filed an appeal against a May 2014 order of the Competition Appellate Tribunal (COMPAT).

Owners’ appeal The directive is not, however, the final judgment and the proceedings are yet to start on the appeal. The court has directed the company to deposit the amount in an interest bearing fixed deposit with the court, till the final verdict. The COMPAT order, that is now appealed, relates to a complaint filed by the owners’ association of a DLF project in Gurgaon. COMPAT had upheld the judgment by the Competition Commission of India (CCI) in the case. The CCI had originally imposed a fine in 2011 for unfair practices, such as drafting one-sided contracts and charging hefty penalties for delayed payments.

Besides this case, DLF is facing legal hassles on many other fronts too. In March, CCI imposed a fine of ₹2.4 crore in a case filed by the Magnolia Flat Owners Association. Recently, delivery of DLF Riverside luxury project in Kochi was put on hold, after the Kerala Government cancelled a clearance. In February, a legal tussle led to the company to forfeit nearly a quarter of the ₹901 crore paid in 2007 to the Delhi Development Authority.

Dampener Legal issues are likely to dent DLF’s prospects in the residential segment. Already the company’s earnings have been on a downtrend since the peak year of 2007-08.

In the June quarter, net profit declined 29 per cent year-on-year to ₹128 crore.

If the court upholds the large penalty payment, it will severely hit DLF’s profits. In 2013-14, net profit was down 12 per cent year-on-year to ₹582 crore in 2013-14. This will not even cover the penalty amount. The company is also saddled with high debt — ₹18,500 crore as of March. Interest expenses have been on the rise, accounting for around 30 per cent of sales.

Demand and prices in Gurgaon, DLF’s main market, continue to be weak. The company sold only 0.44 million sq.ft. (msf) in its New Gurgaon project in 2013-14, against its target of 2.5 msf a year. Bookings for its residential projects have been slowing down and the management guidance for the next six to eight quarters is cautious.

The bright spot for DLF has been the growth in lease income from its commercial properties. Leasing activity was robust for its assets in Gurgaon, Chennai and Hyderabad. During FY14, net leasing was 1.7 msf fetching an annual revenue of ₹1,950 crore. The company has guided that this will increase to ₹2,100 core in FY15.