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DLF: Will restructuring help?
May 6, 2009

Performance summary
  • Revenues drop by 30% YoY during FY09, 74% YoY during 4QFY09. Business impacted by a sharp drop in incremental sales and lower realisations.
  • Operating margins contract by 12.7% YoY to 54.6% during FY09. However margins tumble by 50.8% to 13.8% during 4QFY09. Erosion on account of higher overall expenditure.
  • Net profits decline by 41% YoY during year, lower by 93% YoY for 4QFY09.
  • Total developable area stands at 425 m square feet (msqft) at the end of FY09, as compared to 751 msqft at the end of 3QFY09. The exiting/resizing of various ventures have resulted in this decline in developable area.


Consolidated financial snapshot
(Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
Sales 43,065 11,223 -73.9% 144,329 100,440 -30.4%
Expenditure 15,236 9,677 -36.5% 47,237 45,559 -3.6%
Operating profit (EBDITA) 27,829 1,546 -94.4% 97,092 54,881 -43.5%
Operating profit margin (%) 64.6% 13.8%   67.3% 54.6%  
Other income 658 2,291 248.1% 2,510 4,967 97.9%
Interest 1,079 1,625 50.7% 3,100 3,574 15.3%
Depreciation 362 516 42.8% 901 2,355 161.5%
Profit before tax 27,047 1,695 -93.7% 95,602 53,919 -43.6%
Tax 4,978 (2) -100.0% 17,391 7,115 -59.1%
Minority interest (304) (100)   (355) (302) -14.9%
Share in profit/(loss) of associates 3 (7)   264 (211) -179.8%
Profit after tax/(loss) 21,768 1,591 -92.7% 78,120 46,292 -40.7%
Net profit margin (%) 50.5% 14.2%   54.1% 46.1%  
No. of shares (m)         1,697.2  
Diluted earnings per share (Rs) *         27.3  
P/E ratio (x) *         9.4  
* On a trailing 12-months basis

What has driven performance in FY09?
  • DLF’s revenues declined by 30% YoY during the year. The reasons for the same are various – tightening of liquidity, and lack of customer confidence that has led to higher discount and lower realisations. In fact, the company has estimated a revenue loss of Rs 6.9 bn and profit before tax impact of Rs 3 bn due to one-time price resets and other benefits to beat the slowdown in the sector. Revenues were also lower due to lesser inflow from the company’s largest client, DAL (DLF Assets). During the quarter, DAL contributed to nearly 23% of total income (sales plus other income) as compared to 44% in 3QFY09. It may be noted that during the previous quarter, i.e., 3QFY09, the management had stated that revenues from DAL would remain insignificant in the coming quarters. As for the full year, DAL contributed to nearly 38% of total income.

  • DLF’s operating margins contracted by 12.7% YoY during FY09. This was on account of an overall increase in expenditure (and lower realisations). In order to spur the demand, DLF resorted to lowering prices and rental rates. In its residential space, the average rates of apartments dropped by 33%% YoY as compared to FY08. As such, margins in the same space halved to 21%. Data for other divisions i.e., plots and town house for FY08 is not available for comparison purposes. It may be noted that the margins in the residential segment have been lower on account of higher mid-income housing sales.

  • In the retail segment, the average price (sales) dropped by 49% YoY as compared to the rates at the end of FY08, while lease rates dropped by 17% YoY. Margins of retail division (sales) took a major beating as they dropped by nearly 58% YoY. In the office segment, average prices (sales) dropped by 24% YoY, while margins dropped by 5% YoY. However, DLF still enjoys high margins of 79% in this segment. However, on the bright side, lease rates in the office space increased by 16% YoY.

  • During FY09, DLF recorded a 41% YoY decline in profits, due to a poor performance at the operating level. Net profits, however, dropped by 93% YoY during 4QFY09.

What to expect?
At the current price of Rs 256, the stock is trading at a multiple of 9.4 times its trailing 12-month earnings. Apart from the slow external environment, DLF has a lot of sorting out to do internally. As compared to FY08, the debt on the company’s books has increased by nearly one-third. In the recent past, the company made some strategic investments in areas that do not form part of its core business. Realising this, the management has now decided to sell its stake in its ‘non-core’ business and exit some unviable projects.

All these factors will help in reducing its debt burden. In total, the company is aiming to raise nearly Rs 55 bn through strategic stake sales such as its hotel and wind power business. The management further stated that while the sale of assets worth Rs 35 bn is already under execution, the remaining Rs 20 bn worth of assets to be sold are being identified. In addition to this, it stated that the company is counting on another Rs 20 bn of capital inflows from group company DAL. It maybe be noted that the company is also planning to restructure a part of its debt. As such, the company will convert a part of its short term debt into long-term debt.

On the company’s strategy going forward, the management has mentioned that DLF will continue to focus on affordable housing (in the near term) and commercial complexes. It may be noted that the company has launched various projects, both housing and commercial, in few cities such as Cochin and Chennai, amongst others.

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