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DLF: Divestment to ease cash constraints - Views on News from Equitymaster
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DLF: Divestment to ease cash constraints
Aug 16, 2011

DLF has announced the first quarter results of financial year 2011-2012 (1QFY12). Topline increased 20.6% YoY while bottom-line declined 12.8% YoY during the quarter. Here is our analysis of the results.

Performance summary
  • Topline registered 20.6% YoY growth during 1QFY12 on the back of strong sales booking.
  • Operating margins fell 287 basis points to 45.4% in 1QFY12.
  • Net profits declined 12.8% YoY in 1QFY12 due to increase in interest expense and minority interest.

Consolidated financial snapshot
Rs m 1QFY11 1QFY12 % Change
Net sales 20,285 24,458 20.6%
Expenditure 10,490 13,349 27.3%
Operating profit (EBITDA) 9,796 11,110 13.4%
Operating profit margin (%) 48.3% 45.4%  
Other income 1,321 574 -56.5%
Interest (net) 3,884 4,964 27.8%
Depreciation 1,498 1,702 13.6%
Profit before tax 5,734 5,018 -12.5%
Tax 1,679 1,278 -23.8%
Minority interest 31 166 427.4%
Share in profit/(loss) of associates 54 42 -22.9%
Prior period items 32 (32)  
Profit after tax/(loss) 4,110 3,584 -12.8%
Net profit margin (%) 20.3% 14.7%  
No. of shares (m) 1,698 1,698  
Basic earnings per share (Rs)* 10.2 9.4  
Price to earnings ratio (x)*   20.9  
* On a trailing 12-months basis

What has driven performance in 1QFY12?
  • DLF registered a 20.6% YoY growth in revenues during 1QFY12. The company sold 2.2 m sqft in 1QFY12 (compared to 1.9 m sq ft in 1QFY11). During the current fiscal, it has plans to sell 12 m sqft. Considering the market conditions and the successive hikes in interest rates, the target appears ambitious. The company has 52 m sqft of projects area under construction at the end of the quarter.

  • During 1QFY12, DLF's operating profits increased 13.4% YoY. Operating margins stood at 45.4% in 1QFY12 as compared to 48.3% in 1QFY11. The contraction in the operating margin was mainly due to higher cost of land, development rights and other operating expenses.

  • Net profits declined 12.8% YoY mainly due to higher interest expense and minority interest. Interest expense and minority interest rose 27.8% YoY and 427.4% YoY, respectively. However, the decline in effective tax rate (from 29.3% in 1QFY11 to 25.5% in 1QFY12) provided some cushion to falling bottom line.

What to expect?

At the current price of Rs 195.7, the stock is trading at a multiple of 20.9 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 30 June 2011, total debt on the company's balance sheet is about Rs 239 bn (debt to equity ratio of 0.9x times). Cash flow arising from sale of non-core 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 and macro-economic environment stabilizes.

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