Interest Rate hike: Debt burden of Indian real estate companies increase

The combined net debt of the India's top 11 listed real estate companies is Rs 38,500 crore. The cost of debt for most real estate companies is in the range of 12-15%, on the basis of which the combined interest burden on them is between Rs 4,600 crore and Rs 5,800 crore. RBI (Reserve Bank of India) recently  raised interest rates by 0.25%, which was the 12th in 18 months.

DLF's debt stands at Rs 21,524 crore, Unitech's at Rs 5,330 crore, HDIL's debt stands at Rs 3,920 crore.
While some real estate firms are trying to reduce their debt, the impact has been nullified by the rise in interest rates.
In the last 12 months, the Unitech has reduced its debt by 15-17% through internal accruals.

DLF's net debt has not changed too much in the last 12 month, which has meant that its interest outflow has gone up by almost 2%. The company's current debt cost has gone up from nearly 10.5%  in March last year (2010) to about 12.5% now. For every 1 per cent increase in interest rate, the annualised interest outgo increases by about Rs 200 crore.
Rising interest rates have had an impact on the profitability of the Indian real estate companies.

DLF's PAT (Profit After Tax) has declined by about 13% year-on-year at the end of the first quarter of this fiscal. In the same period, HDIL has seen a drop of 11 % Y-o-Y in its PAT.
Many  companies are trying to reduce their debt by selling non-core assets. DLF plans to raise Rs 6,000-7,000 crore via this route. Unitech too is looking at reducing its debt further by selling its SEZs and IT parks. Sobha Developers plans to bring down its debt by Rs 300 crore by March 2012 via internal accruals and asset sales.

Share: