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DLF: Showing signs of revival - Views on News from Equitymaster

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DLF: Showing signs of revival
Jul 29, 2010

DLF announced 1QFY11 results. Top-line increased 23% YoY while bottom-line registered a flattish growth (4% YoY) during the quarter. Here is our analysis of the results.

Performance summary
  • Topline registered 23% YoY growth during 1QFY11 on the back of strong sales booking. The company booked 1.9 msf of area in 1QFY11. However, on a sequential basis revenue growth was flat.
  • Operating margins stood at 48% during 1QFY11, up from 45% in 1QFY10 on account of decline in expenditure as a percentage of sales.
  • Despite strong growth in operating profits, net profit registered a 4% YoY growth in 1QFY11 due to increase in depreciation and interest expenses.
  • Total developable area stands at 413 m sqft at the end of the quarter as compared to 416 m sqft at the end of the preceding quarter.



Consolidated financial snapshot
(Rs m) 1QFY10 1QFY11 Change
Sales 16,499 20,285 23.0%
Expenditure 9,057 10,490 15.8%
Operating profit (EBDITA) 7,441 9,796 31.6%
Operating profit margin (%) 45.1% 48.3%  
Other income 961 1,321 37.5%
Interest 2,874 3,884 35.2%
Depreciation 734 1,498 104.1%
Profit before tax 4,794 5,734 19.6%
Tax 993 1,679 69.0%
Minority interest 165 -31  
Share in profit/(loss) of associates (6) 54  
Prior period items - 32  
Profit after tax/(loss) 3,960 4,110.3 3.8%
Net profit margin (%) 24.0% 20.3%  
No. of shares (m)   1,697.6  
Basic earnings per share (Rs) *   2.42  
P/E ratio (x) * 30.3  
* On a trailing 12-months basis

What has driven performance in 1QFY11?
  • DLF registered a 23% YoY growth in revenues during 1QFY11. The company booked nearly 1.9 m sqft of property in its developmental business (residential and commercial complexes), as compared to 3.6 m sqft recorded in the preceding quarter. Under the annuity business, DLF booked 0.98 m sqft as compared to 0.69 m sq ft in 4QFY10. DLF currently has 38 m sqft of area under construction in its development business and 16 m sq ft in the annuity business.

  • On a YoY basis, DLF witnessed a good jump in realizations for its developmental business, particularly in the residential segment. Even on a sequential basis, the realizations in the residential segment increased dramatically. However, realizations in the commercial space declined 32% YoY during the quarter. It should be noted that the company did not sell any commercial space in the last quarter. Margins in its residential business stood at 56% while margins in the commercial space stood at 75% during the quarter. As for the annuity business, the average lease rates in the office segment increased by 60% YoY. However, the average lease rates in the retail segment witnessed a drop.

  • During 1QFY11, DLF’s operating profits increased 32% YoY. Operating margins stood at 48% as compared to 45% in 1QFY10. Despite the strong growth in operating profits, net profits increased by meager 4% YoY mainly due to burgeoning interest and depreciation expenses. Interest and depreciation cost rose 35% YoY and 104% YoY, respectively.

What to expect?
At the current price of Rs 310, the stock is trading at a multiple of 30.3 times its trailing 12-month earnings. Going forward, management plans to focus on project execution rather than new launches. The price volume equation is also showing signs of stabilization. Even on the leasing front, there has been strong momentum in the office space. However, the retail segment is in doldrums and yet to witness an uptick.

DLF, the real estate major, has been working consistently on reducing its debt burden by ‘unlocking’ its non-core assets. The company’s divestment plan is on track. It realized approximately Rs 2.9 bn during the quarter through sale of non-core assets and has plans to divest Rs 25 bn over the next 15-18 months. Cash flow arising from sale of noncore assets will be used to repay debt. The company paid off debt to the tune of Rs 7 bn during the quarter. The net debt position at the end of the quarter stood at about Rs 184 bn (including preference shares), translating into net debt/equity ratio of 0.68. The company plans to maintain the net debt/ equity ratio in the range of 0.4-0.5x versus peak range of 0.65-0.75x.

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