India's biggest real estate developer, DLF
DLF, which builds homes, offices and retail centres, is among several Indian developers struggling to reduce debt and improve profitability as high interest costs and a faltering economy weigh on balance sheets.
GDP was 6.1 percent in the December quarter, the lowest rate in almost three years.
"We expect the current economic and business environment will continue to stay challenging for the next few quarters," DLF said in a statement late on Wednesday.
The Delhi-based developer reported consolidated net profit of 2.12 billion rupees for the quarter ended March, compared with 3.44 billion rupees a year ago.
Revenue was down about 2 percent at 26.2 billion rupees.
Analysts on average expected the company to post net profit of 2.8 billion rupees on revenue of 23.5 billion, according to Thomson Reuters I/B/E/S.
But it is DLF's debt of about $4.32 billion as of December 2011 that has investors most worried.
Since 2007-08, DLF's interest expense has jumped nearly sixfold and was 17.1 billion rupees for the fiscal year that ended March 2011. Over the same period, net profit tanked 80 percent to 15.4 billion rupees.
In addition, the property sector has witnessed a significant slowdown in home sales to 23 percent of new launches in 2011, according to Delhi-based data firm PropEquity, stymying cash flow and making it harder for developers to service loans.
DLF, which saw a 37 percent erosion in its share price in 2011, is struggling to meet a target of selling non-core assets worth 60-70 billion rupees by 2012/13 to pare its debt.
This includes the sale of global hotel chain Amanresorts, which stalled in January after DLF received lower-than-expected bids, a plot of land in Mumbai which private developer Lodha is close to buying, and its wind turbine business.
As developers struggle to reduce debt, lenders and investors are distancing themselves from the sector.
Real estate loans, which comprise nearly 3 percent of outstanding loans in the Indian banking system, rose just 6 percent in 2011/12 compared with 20 percent growth in the previous year, and private equity funding has dried up.
"This clearly shows that sentiment towards investing in real estate has gone away," said Sharan Lilaney, property analyst at Mumbai-based Angel Broking.
Shares in DLF, valued at $5.8 billion by the market, closed 2.52 percent lower at 183.45 rupees before the results were announced, in a weak Mumbai market.
The shares, up 0.2 percent this year, are lagging a near-14 percent gain in the real estate index.