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DLF: High interest cost dents profits
Jan 28, 2010

Performance summary
  • Sales grow by 48% YoY during 3QFY10, down by 39% YoY during 9mFY10. Growth during quarter on the back of strong sales booking and low base effect. On a sequential basis, revenues higher by 16%.
  • Operating margins drop to 42% during 3QFY10, from 57% in 3QFY09. This is on the back of higher overall expenditure primarily related to land acquisition and development rights.
  • Net profits decline by 30% YoY during 3QFY10 due to higher tax rates and burgeoning interest cost.
  • Total developable area stands at 430 msqft at the end of the quarter as compared to 423 msqft at the end of the preceding quarter.


Consolidated financial snapshot
(Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Sales 13,667 20,258 48.2% 89,217 54,266 -39.2%
Expenditure 5,947 11,825 98.8% 35,882 29,254 -18.5%
Operating profit (EBDITA) 7,720 8,433 9.2% 53,335 25,012 -53.1%
Operating profit margin (%) 56.5% 41.6%   59.8% 46.1%  
Other income 1,361 1,260 -7.4% 2,676 2,816 5.2%
Interest 938 2,568 173.9% 1,948 7,928 306.9%
Depreciation 788 800 1.5% 1,839 2,299 25.0%
Profit before tax 7,356 6,325 -14.0% 52,224 17,600 -66.3%
Tax 537 1,684 213.4% 7,116 4,595 -35.4%
Minority interest (20) 29   (202) 70  
Share in profit/(loss) of associates (90) (40)   (204) (42)  
Prior period items - 49   - 2  
Profit after tax/(loss) 6,708 4,679 -30.2% 44,701 13,036 -70.8%
Net profit margin (%) 49.1% 23.1%   50.1% 24.0%  
No. of shares (m)         1,697.3  
Diluted earnings per share (Rs) *         7.7  
P/E ratio (x) *         42.3  
* On a trailing 12-months basis

What has driven performance in 3QFY10?
  • DLF registered a 48% YoY growth in revenues during 3QFY10. However, during the first nine month of FY10, revenues dropped by about 39% YoY. The company booked nearly 3.1 msqft of property in its developmental business (residential and commercial complexes), as compared to 0.7 msqft recorded in 2QFY10. Under the annuity business, DLF booked 0.42 msqft as compared to 0.24 m sq ft in 3QFY09. DLF currently has 33 msqft of area under construction in its development business and 17 m sq ft in the annuity business.

  • On a YoY basis, DLF has witnessed a good jump in realisations for its developmental business particularly in the residential segment. While realisations of homes increased by a robust 115% YoY (weighted average sales rates), those of the commercial complexes registered flattish growth (1.7% YoY) during the quarter. Margins in its residential business stood at 69% during the quarter, while those in the commercial complex business stood at about 68%. As for the annuity business, the average lease rates in the office segment dropped by 4% YoY. Average retail lease rates dropped by 34% YoY.

  • During 3QFY10, DLF’s operating profits increased by 9% YoY. However, margins stood at 42% as compared to 57% in 3QFY09. At the bottomline level, DLF’s profits declined by 30% YoY during 3QFY10 mainly due to higher interest cost and rise in tax rates. Interest cost rose by 174% YoY while the tax rate stood at 27% in the quarter as compared to 7% in 3QFY09.

What to expect?
At the current price of Rs 325, the stock is trading at a multiple of 42.3 times its trailing 12-month earnings. Going forward, DLF’s management plans to focus on the mid-income housing segment on a pan-India basis and has forthcoming launches at attractive price points in Chennai and Kochi. Sales bookings in FY10 are progressing well while the management expects new launches in FY11 to be a mix of luxury/high end and mid income housing projects.

DLF has been working consistently on reducing its debt burden by ‘unlocking’ its non-core assets. The company divested and realized approximately Rs 1.7 bn during the quarter through sale of some of its non-core assets and plans to garner about Rs12.5 bn by the end of last quarter. With the commencement of construction for SBM and other projects cash flow visibility over the next few quarters is expected to improve. As per the company, the net debt position at the end of the quarter stood at about Rs 128 bn, translating to a debt to equity ratio of about 0.5 times.

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