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DLF: Asset sales to ease cash constraints
May 26, 2011

DLF has announced the fourth quarter results of financial year 2010-2011 (4QFY11). Topline increased 34.5% YoY while bottom-line declined 19.2% YoY during the quarter. Here is our analysis of the results.

Performance summary
  • Topline registered 34.5% YoY growth during 4QFY11 on the back of strong sales booking.
  • Operating margins fall drastically to 24.8% in 4QFY11.
  • Net profits declined 19.2% YoY in 4QFY11 due to increase in depreciation and interest expenses.
  • The company has declared a dividend of Rs 2 per share for FY11.


Consolidated financial snapshot
(Rs m) 4QFY10 4QFY11 Change FY10 FY11 Change
Sales 19,944 26,831 34.5% 74,229 95,606 28.8%
Expenditure 9,944 20,169 102.8% 39,113 58,079 48.5%
Operating profit (EBDITA) 10,000 6,662 -33.4% 35,116 37,527 6.9%
Operating profit margin (%) 50.1% 24.8%   47.3% 39.3%  
Other income 1,518 1,866 23.0% 4,280 5,839 36.4%
Interest 3,147 4,557 44.8% 11,100 17,056 53.7%
Depreciation 947 1,657 75.0% 3,249 6,307 94.1%
Profit before tax 7,424 2,314 -68.8% 25,046 20,002 -20.1%
Tax 2,362 156 -93.4% 7,023 4,594 -34.6%
Minority interest 28 312 1019.4% 108 (72)  
Share in profit/(loss) of associates 47 37 -20.9% 8 88  
Prior period items (873) 937   (942) 972  
Profit after tax/(loss) 4,264 3,445 -19.2% 17,198 16,396 -4.7%
Net profit margin (%) 21.4% 12.8%   23.17% 17.1%  
No. of shares (m)         1,697.6  
Basic earnings per share (Rs) *         9.66  
P/E ratio (x) *         21.8  
* On a trailing 12-months basis

What has driven performance in 4QFY11?
  • DLF registered a 34.5% YoY growth in revenues during 4QFY11. It may be noted that the company sold 10 m sqft in FY11 (previous year 12.5 m sq ft). This was below its initial guidance of 12 m sqft. Nonetheless, it has plans to sell 12 m sqft during the current fiscal. Considering the market conditions the target appears ambitious.

  • During 4QFY11, DLF's operating profits declined 33.4% YoY. Operating margins stood at 24.8% in 4QFY11 as compared to 50.1% in 4QFY10. The fall in the operating profits was mainly due to a onetime adjustment related to cost reset for input price inflation.

  • Net profits declined 19.2% YoY mainly due to burgeoning interest and depreciation expenses. Interest and depreciation cost rose 44.8% YoY and 75.0% YoY, respectively. However, the tax rates declined due to deferred tax adjustments.

What to expect?
At the current price of Rs 210, the stock is trading at a multiple of 21.8 times its trailing 12-month earnings. Going forward, rising interest rate scenario could result in higher borrowing cost. However, the company has been working consistently on reducing its debt burden (and thus interest costs) by ‘unlocking' its non-core assets. It has plans to unlock Rs 60-70 bn over the next 2-3 years by selling the non-core assets.

As of 31 March 2011, total debt on the company's balance sheet is about Rs 240 bn (debt to equity ratio of 0.9x times). Cash flow arising from sale of noncore assets will be used to repay debt. Although sales from non-core assets will ease cash flow constraints to some extent we do not expect the situation to change dramatically unless the pricing takes a backseat. We would advise investors to remain cautious about the stock.

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