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DLF: Tough times continue - Views on News from Equitymaster
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DLF: Tough times continue
Feb 28, 2012

DLF has announced it results for the quarter ended December 2011. While revenues declined by 18% YoY, profits declined by 45% YoY during the quarter. Here is our analysis of the results.

Performance summary
  • Revenues decline by 18% YoY during quarter. The company booked 3.3 million square feet (msf) of area in its developmental (residential and commercial complexes) business while it leased out 0.42 msf during the quarter.
  • Operating margins decline sharply by 7.1% YoY during the quarter. Barring cost of land, all cost heads rose as a percentage of sales during the quarter.
  • Net profits declined 45% YoY during the quarter led by a poor operating performance, higher interest costs as well as a higher effective tax rate.
  • At the end of the quarter, the company had a development potential of approximately 349 msf.

Consolidated financial snapshot
(Rs m) 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
Sales 24,799 20,344 -18.0% 68,775 70,126 2.0%
Expenditure 13,020 12,116 -6.9% 37,910 39,059 3.0%
Operating profit (EBDITA) 11,780 8,227 -30.2% 30,865 31,067 0.7%
Operating profit margin (%) 47.5% 40.4%   44.9% 44.3%  
Other income 1,143 3,617 216.4% 3,973 4,638 16.8%
Interest 4,277 6,199 44.9% 12,499 16,426 31.4%
Depreciation 1,612 1,797 11.5% 4,650 5,252 12.9%
Profit before tax 7,034 3,848 -45.3% 17,688 14,027 -20.7%
Tax 2,026 1,353 -33.2% 4,439 4,106 -7.5%
Minority interest (284) 109   (385) (57) -85.3%
Share in profit/(loss) of associates (2) (17)   51 20 -60.2%
Prior period items (65) (4) -94.4% 35 7 -80.8%
Profit after tax/(loss) 4,657 2,584 -44.5% 12,951 9,891 -23.6%
Net profit margin (%) 18.8% 12.7%   18.8% 14.1%  
No. of shares (m)       1,697.5 1,698.3  
Basic & diluted earnings per share (Rs)         7.9  
P/E ratio (x) *         28.5  
* On a trailing 12-months basis

What has driven performance in 3QFY12?
  • DLF's revenues declined by 18% YoY during the quarter ended December 2011. As part of its development business, DLF sold 3.3 msf in 3QFY12 as compared to 2.48 msf during 3QFY11. While the area sold is more in absolute terms, as per the company, there were a higher proportion of lower value sales during the quarter. Under the annuity business, DLF booked 0.42 msf during the quarter as compared to 1.97 msf in 3QFY11 and 0.66 msf in the preceding quarter i.e. 2QFY12. DLF currently has 40.7 msf of area under construction in its developmental business and 15.7 msf in the annuity business.

  • During 3QFY12, DLF's operating profits declined by 30.2% YoY. Operating margins stood at 40.4% during the quarter as compared to 47.5% in 3QFY11.

  • DLF's profit before tax and net profits declined by 45% YoY each. Despite higher other income, profits declined at a sharper pace on account of higher interest costs and a higher tax outgo (effective tax rate).

What to expect?
At the current price of Rs 224, the stock is trading at a multiple of 28.5 times its trailing 12-month earnings. The prevailing macro factors viz. tight liquidity condition and higher borrowing costs have created pressure on developers. Further, buyers seem to be deferring purchases on expectations of lower interest rates in the future.

DLF has chalked out strategies for the medium term, which includes improving the health of its balance sheet by divesting the non-core assets. The plans of unlocking Rs 60-70 bn over the next 2-3 years by divesting such assets remains unchanged. At the same time, however, implementing this strategy will require patience given that the global headwinds are making the scenario difficult for the company to divest these assets. The company plans to focus on growing its annuity business over the medium term as well as focus on its strategy of plotted developments, given that the demand for the same is buoyant and is also less construction intensive, which shields the company from inflationary risks.

At the end of the quarter, the net debt on the company’s balance sheet stood at about 230 bn. Progress on the divestment strategy and future debt position remain the key areas to monitor in the near future.

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