INTRODUCTION:
DLF’s primary
business is development of residential, commercial and retail properties. The
company has a unique business model with earnings arising from development and
rentals. Its exposure around businesses, segments and geographies, mitigates
any down-cycles in the market. From developing 22 major colonies in Delhi, DLF
is now present across 15 states- 24 cities in India.
Development Business:
The development
business of DLF includes Homes and Commercial complexes. The development business
at present has 247 msf of development potential.
Annuity Business:
The annuity
business consists of rental businesses of offices and retail. The company has
land resource of 48 msf for retail and office development.
DLF got a hit by
economic slowdown, resulting into slipping of GDP growth from 9.7% in 2010 to
4.3% in 2013. This slowdown was largely attributed to the slowdown in policy
initiatives during the recent parliamentary elections. Besides that, high
interest regime, enforced to rein in inflation had an impact on slowing down of
investments.
According to RBI
and contingent upon the desired inflation outcome, real GDP growth is projected
to pick up from a little below 5 per cent in 2013-14 to more sustained levels
which will help in bringing more growth to the overall economy.
The newly formed
government has given some signals of moving along development agenda that will
push for reforms and are necessary to revitalize the economy.
The Company
visualizes a pick-up in real estate demand beginning from the second half of
FY’15.
THE INDIAN
REAL ESTATE SECTOR:
The year 2013-14
proved to be a challenge for real estate sector due to poor macro economic
conditions, slowing income growth, high cost of borrowing both for industry and
consumers, inflation and slowdown in policy initiatives. But instead of this,
the Indian real estate sector may benefit from the formation of stable
government, positive market sentiments and growth prospects for all business.
According to the
Economic Survey of India, 2012-13, the real estate sector contributed 5.9% of
the India’s total GDP in 2011-12, registering a growth of 7.2% from the previous
year, which clearly signifies the important contribution of the sector towards
the economy.
BUSINESS AND FINANCIAL PERFORMANCE & OUTLOOK:
Strategy:
The company is
now seeking to target certain key geographic markets and to achieve a suitable
product and price combination in these markets. The company is also investing
in the development of supporting urban infrastructure in certain select,
strategic locations to ensure the high quality of developments. The company’s
current strategy is aimed at developing its core business, rationalizing its
costs and reducing its levels of indebtedness. The company continue to build on
its core business of real estate development and leasing, and believes that it
is well placed to reduce its indebtedness, execute its real estate development
and leasing operations.
The key elements
of its business strategy are as follows:
( a)
Focus on its core business of real estate development and leasing
The company intends to continue outsourcing most of its construction
related activities as well as project management to high quality third party
contractors and firms with an aim to improve execution timetables, to enable
focus on the Company’s core activity of real estate development and embark on
more complex and ambitious projects.
DLF has divided its real estate business in two parts:
·
DevCo, under which all residential
projects fall.
·
RentCo, which is the rental business
from office and retail projects.
b) Launch certain select
residential and commercial projects
The company plans to focus on the development and launch of residential
projects, certain commercial and shopping complexes in certain key Metro and
Tier I locations.
(c) Continue to focus on the
growth of lease business
The company proposes to increase its leased commercial and retail
portfolio properties in order to meet increased demand over the medium term.
The company also believes that high quality infrastructure and convenient
location will help it to differentiate from its competitors.
( d)
Planned divestiture of selected non-core assets and businesses
The company plans to make select divestitures to fund any capital
expenditure/operating shortfalls in the short term. It realized proceeds of approximately Rs. 4,067
crores during FY’14 from the divestment of non-core assets and businesses.
The Company also raised Rs. 1,863 crores through the Institutional
Placement Programme during the year, primarily to reduce the Promoters’
shareholding to 75% in compliance with extant guidelines.
(e) Reduce Debt
The company intends to finance any capital expenditure through selective
divestures to maintain the net debt at the similar level in the medium term. As
of 31st March, 2014, the company’s net debt amounted to Rs. 18,526 crores.
(f) Rationalize Costs and
Capital Expenditure
The Company will continue to incur capital expenditure for the
completion of existing commercial projects. The company has also introduced an
escalation clause in some of its development projects in order to mitigate the
risks relating to commodity inflation and rising labour costs.
(g) Rationalize its Land
Reserves and Increase Presence in Strategic Locations
The company seeks to concentrate on and expand its operations in
certain key strategically important geographic markets and continue to focus on
rationalizing portions of its land reserves that it does not consider having
significant development potential. In order to achieve this, the company has
acquired additional land parcels in Chandigarh Tri City and New Gurgaon during
the last year.
(h) Continue to develop
supporting infrastructure for its key developments
The company intends to develop supporting infrastructure in certain
key strategically important markets and believes that this will benefit its
customers and enhanced the quality of its leased portfolio properties resulting
in higher lease income from such developments as well as an appreciation in
value of the existing and future residential developments in the vicinity.
Challenges:
The company
faces several challenges which includes uncertain economic, regulatory and
taxation environment.
FINANCIALS:
The company also
saw the decrease in its total liabilities. The total liabilities reduced by 4.33%
in the past financial year in comparison to the year 2012-13, this decrease in
total liabilities is mainly due to decrease in total long term borrowings.
During year 2013-14, total assets of the company decreased by a very small
percentage, i.e. 0.19%. The decrease in the assets is mainly due to the
company’s decision of divestment to increase liquidity to invest in new
projects and to pay the debts.
Summarised Balance Sheet for previous five years
(Rs. In croress)
|
2010
|
2011
|
2012
|
2013
|
2014
|
Share capital
|
6,259.34
|
2,149.78
|
2,138.88
|
2,138.94
|
2,155.49
|
Reserves and surplus
|
24,173.39
|
24,182.32
|
25,097.04
|
25,388.75
|
27,038.58
|
Total Equity
|
31,060.50
|
26,907.30
|
27,656.57
|
27,929.71
|
29,396.38
|
Long-term borrowings
|
19,301.59
|
18,307.63
|
16,824.16
|
15,541.53
|
13,579.29
|
Total long-term borrowings
|
21,928.14
|
20,780.85
|
19,194.47
|
17,847.10
|
15,849.13
|
Short-term borrowings
|
3,112.04
|
3,344.53
|
3,398.74
|
3,535.72
|
3,004.03
|
Short-term trade payables
|
1,524.93
|
2,263.63
|
2,580.70
|
2,698.14
|
2,280.98
|
Total current liabilities
|
8,777.13
|
13,129.56
|
16,538.40
|
18,849.96
|
19,256.84
|
Total Liabilities
|
30,705.27
|
33,910.41
|
35,732.87
|
36,697.06
|
35,105.97
|
(Rs. In croress)
|
2010
|
2011
|
2012
|
2013
|
2014
|
Total Net Block
|
16,558.86
|
17,873.19
|
18,714.05
|
18,286.53
|
17,637.83
|
Total Non Current Assets
|
21928.141
|
20780.845
|
19194.4671
|
17847.101
|
15849.132
|
Inventories
|
12,480.59
|
15,038.76
|
16,175.57
|
17,645.53
|
18,488.62
|
Trade Balance
|
1,618.96
|
1,565.97
|
1,765.91
|
1,653.25
|
1,561.23
|
Cash And Bank Balances
|
928.23
|
1,321.78
|
1,506.23
|
1,844.14
|
2,442.03
|
Total Current Assets
|
27305.763
|
28,243.65
|
29,459.24
|
31,532.04
|
34,422.95
|
Total Assets
|
61765.769
|
60817.7132
|
63389.4424
|
64626.769
|
64502.352
|
Annual Revenues
from operations for the financial year 2013-14 is increased by 6.76% to Rs.
8298.04 crores. EBITDA margin is increase by .29%. It is Rs.3956.28 crores in
comparison to Rs. 3944.94 crores during last year. Cost of revenues increased
by 15.62% in the FY’14. The cost of revenues for the financial year 2013-14 is
Rs. 3880.34 crores as compare to Rs. 3355.88 crores in the last year. The same kind of trend was witnessed in
the general, selling and administrative expenses. The company’s general, selling
and administrative expenses saw a growth of 13.51% from Rs. 1195.04 crores to Rs. 1356.51 crores. While the company’s establishment cost declined by 3.32% in the
FY’14. The establishment cost for the year 2013-14 is Rs. 575.93 crores as compare to Rs. 595.71 crores for the financial year 2012-13. The company also saw decline in
profit after tax due to high inflation rate, high cost of borrowing and policy
paralysis due to the indecisiveness of bureaucrats. The profit for the year is
Rs. 582.61 crores, a decline by 12.16% as compare to Rs. 663.29 crores during
the last year.
Summarized P&L for previous five years
(Rs. In croress)
|
2010
|
2011
|
2012
|
2013
|
2014
|
Revenue from Operations (Net)
|
7422.87
|
9560.56
|
9629.37
|
7772.84
|
8298.04
|
EBITDA
|
3924.18
|
4416.42
|
4492.65
|
3944.94
|
3956.28
|
Finance cost
|
1110.04
|
1705.61
|
2246.48
|
2314.04
|
2463.25
|
Depreciation and Amortization
|
324.93
|
630.71
|
688.82
|
796.23
|
662.93
|
Profit before tax
|
2489.21
|
2080.1
|
1541.37
|
801.71
|
500.24
|
Current tax expense
|
776.16
|
653.23
|
555.97
|
514.67
|
366.21
|
Profit for the year
|
1708.26
|
1638.02
|
1168.7
|
663.29
|
582.61
|
Debt to equity ratio during the financial year 2013-14 remains at
.68. Return on capital employed improved to 7.3% this year as compare to 6.9%
last year. The Days Inventory Outstanding (DIO) decreased from 1919.204 days to
1739.112 days during the financial year. The Days Sales Outstanding (DSO) also came
down to 68.67 days as compare to 77.63 days in the last year. The Days Payable
Outstanding (DPO) of company reduced by 78.9 days. Overall, Cash Conversion
Cycle (CCC) decreased to 1593.22 days in the financial year 2013-14 from
1703.38 days in the previous year.
Ratio analysis for previous five years
2010
|
2011
|
2012
|
2013
|
2014
|
|
Debt Equity Ratio
|
0.721612
|
0.80469454
|
0.7312152
|
0.6830451
|
0.6830451
|
RoCE
|
.068
|
.079
|
.081
|
.069
|
.073
|
Days Payable
|
215.7755
|
192.1477
|
237.42
|
293.461
|
214.5579
|
Days Receivable
|
79.60828
|
59.78521
|
66.9364
|
77.63403
|
68.67263
|
Days Inventory
|
1765.987
|
1276.564
|
1488.123
|
1919.204
|
1739.112
|
Using the Discounted
Cash Flow method, the estimated price per
share comes out to be Rs. 121.67.
We assumed the annual growth rate of 15% for the period of 2015-17 and
thereafter 20% for the next two years keeping in mind the current industry and
company outlook. The current market share
price of DLF Ltd. is Rs. 146.40.
Projected Balance Sheet for next five years
(Rs. In croress)
|
2015
|
2016
|
2017
|
2018
|
2019
|
Share capital
|
2,155.49
|
2,155.49
|
2,155.49
|
2,155.49
|
2,155.49
|
Reserves and surplus
|
27,073.75
|
27,394.45
|
28,029.81
|
29,140.66
|
30,805.08
|
Total Equity
|
29,431.54
|
29,752.23
|
30,387.60
|
31,498.44
|
33,162.86
|
Long-term borrowings
|
13,595.53
|
13,743.67
|
14,037.17
|
14,550.31
|
15,319.16
|
Total long-term borrowings
|
15,817.01
|
15,965.15
|
16,258.65
|
16,771.79
|
17,540.65
|
Short-term borrowings
|
3,007.62
|
3,040.393
|
3,105.32
|
3,218.84
|
3,388.93
|
Short-term trade payables
|
2,623.13
|
3,016.59
|
3,469.08
|
4,162.90
|
4,995.48
|
Total current liabilities
|
19,602.58
|
20,028.82
|
20,546.24
|
21,353.57
|
22,356.24
|
Total Liabilities
|
35,419.59
|
35,993.97
|
36,804.88
|
38,125.36
|
39,896.88
|
(Rs. In croress)
|
2015
|
2016
|
2017
|
2018
|
2019
|
Total Net Block
|
16,674.60
|
15,915.35
|
15,156.09
|
14,396.84
|
13,637.59
|
Total Non Current Assets
|
21,889.58
|
21,130.33
|
20,371.08
|
19,611.82
|
18,852.57
|
Inventories
|
19,455.34
|
19,723.86
|
20,157.74
|
20,887.14
|
21,917.92
|
Trade Balance
|
1,795.41
|
2,064.72
|
2,374.43
|
2,849.32
|
3,419.18
|
Cash And Bank Balances
|
9,779.72
|
10,896.21
|
12,358.15
|
14,344.44
|
16,938.99
|
Total Current Assets
|
42,961.54
|
44,615.87
|
46,821.40
|
50,011.98
|
54,207.18
|
Total Assets
|
64,851.12
|
65,746.20
|
67,192.48
|
69,623.80
|
73,059.75
|
Projected P&L for next five years
(Rs. In croress)
|
2015
|
2016
|
2017
|
2018
|
2019
|
Revenue from Operations (Net)
|
9542.746
|
10974.28
|
12620.28
|
15144.34
|
19081.87
|
EBITDA
|
2858.049
|
3286.756
|
3779.77
|
4535.724
|
5442.869
|
Finance cost
|
2141.233
|
2143.794
|
2167.153
|
2213.433
|
2294.347
|
Depreciation and Amortization
|
759.252714
|
759.252714
|
759.25271
|
759.25271
|
759.2527
|
Profit before tax
|
-42.4369
|
383.7096
|
853.3636
|
1563.038
|
2389.268
|
Current tax expense
|
-14.0042
|
126.6242
|
281.61
|
515.8024
|
788.4586
|
Profit for the year
|
-28.4327
|
257.0855
|
571.7536
|
1047.235
|
1600.81
|
PRICE
PERFORMANCE INDEX:
About the Author
This report has been authored by Suyasha Shah
and Gagan Singhal. Both are pursuing MBA from Institute of Management, Nirma
University, Ahmedabad, Gujarat, India.
Disclaimer
This document is solely for the personal information
of the recipient, and must not be singularly used as the basis of any
investment decision. Nothing in this document should be construed as investment
or financial advice. Each recipient of this document should make such
investigations as they deem necessary to arrive at an independent evaluation of
an investment in the securities of the companies referred to in this document
(including the merits and risks involved), and should consult their own
advisors to determine the merits and risks of such an investment.
The information in this document has been printed
on the basis of publicly available information, internal data and other
reliable sources believed to be true, but we do not represent that it is
accurate or complete and it should not be relied on as such, as this document
is for general guidelines only.
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