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DLF: Un'interest'ing performance - Views on News from Equitymaster
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DLF: Un'interest'ing performance
Oct 30, 2009

Performance summary
  • Revenues drop by 55% YoY during 1HFY10, 53% YoY during 2QFY10. On a sequential basis i.e., as compared to 1QFY10, 2QFY10 revenues are higher by 6%.
  • Operating margins contract by 11.6% YoY to 48.8% during 1HFY10. Margin erosion is on account of higher overall expenditure. Operating profits decline by 64% YoY.
  • Net profits decline by 78% YoY during first half, lower by 77% during 2QFY10. Apart from poor operating performance, bottomline performance hampered by higher interest costs.
  • Total developable area stands at 432 m square feet (msqft) at the end of the quarter ending September 2009 as compared to 423 msqft at the end of the preceding quarter.


Consolidated financial snapshot
(Rs m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
Sales 37,444 17,509 -53.2% 75,550 34,008 -55.0%
Expenditure 15,274 8,371 -45.2% 29,935 17,429 -41.8%
Operating profit (EBDITA) 22,170 9,138 -58.8% 45,615 16,579 -63.7%
Operating profit margin (%) 59.2% 52.2%   60.4% 48.8%  
Other income 958 594 -37.9% 1,315 1,555 18.3%
Interest 469 2,486 429.9% 1,011 5,360 430.4%
Depreciation 505 766 51.6% 1,051 1,500 42.7%
Profit before tax 22,154 6,481 -70.7% 44,868 11,275 -74.9%
Tax 2,813 1,918 -31.8% 6,579 2,911 -55.8%
Minority interest (75) (123)   (182) 42  
Share in profit/(loss) of associates 87 4   (114) (2)  
Prior period items - (47)   - (47)  
Profit after tax/(loss) 19,354 4,397 -77.3% 37,993 8,357 -78.0%
Net profit margin (%) 51.7% 25.1%   50.3% 24.6%  
No. of shares (m)         1,697.2  
Diluted earnings per share (Rs) *         8.9  
P/E ratio (x) *         43.7  
* On a trailing 12-months basis

What has driven performance in 2QFY10?
  • DLF recorded a 53% YoY fall in revenues during 2QFY10. During the first six month of FY10, revenues dropped by about 55% YoY. However, on a quarter on quarter basis, revenues are higher by about 6%. The company booked nearly 2.7 m sqft of property in its developmental business (residential and commercial complexes), which was similar to that recorded in the preceding quarter. However, the company was able to improve revenues on the back of higher realisations during the quarter, indirectly indicating an upswing in demand.

    During the quarter, DLF launched the second phase of Capital Greens, wherein it sold nearly 2 msqft worth of property (1,200+ apartments) at rates higher by 30% as compared to the phase-I of the project (launched during 1QFY10). As far as the leasing business is concerned, the company stated that the new volumes remain subdued in both the retail and office space segments. However, it did add that enquiries in the office leasing space have improved significantly and that clients are looking to take up additional office space as well.

  • On a year on year basis, DLF has witnessed a good jump in realization for its sales (developmental) business. While realization of homes increased by a massive 145% YoY (weighted average sales rates; mainly on account of 0.35 m sqft sold in the luxury space), those of the commercial complexes increased by 86% YoY as during the quarter. Margins in its residential business increased to nearly 63% from 42% in the quarter ending September 2008, while those in the commercial complex business stood at about 74% as compared to 67% last year. As for its annuity business, the average lease rates in the office segment dropped by 41% on a year on year basis, while the average retail lease rates increased by 38% YoY.

  • During 2QFY10, DLF’s operating profits declined by 59% YoY on the back of a strong contraction in operating margins. Margins stood at 52.2% as compared to 59.2% in 2QFY09. However on a quarter on quarter basis, the performance is better as the company had recorded margins of about 45% during the preceding quarter. At the bottomline level, DLF’s profits declined by 77% YoY during 2QFY10. This is much higher than the fall in operating profits. This was mainly on the back of higher interest costs (430% YoY). As a percentage of sales, interest costs increased to 14% of sales as compared to about 1% in 2QFY09.

What to expect?
At the current price of Rs 388, the stock is trading at a multiple of 43.7 times its trailing 12-month earnings. DLF has been working on reducing its debt burden by ‘unlocking’ its non-core assets. The company has set itself a target to raise nearly Rs 55 bn from the same. However, during the first half of the year, it has only been able to raise about Rs 11 bn. DLF’s management is however, quite optimistic on meeting the target by the end of the year. The rationale behind the same is that some of the assets that are currently under negotiations are valued at high rates. As per the company, the net debt position at the end of the quarter stood at about Rs 121 bn, translating to a debt to equity ratio of about 0.5.

During the quarter, the company also announced its plans to enter the value housing segment, which marks its foray into the affordable housing segment. DLF plans to launch about 3 to 4 m sqft during the current fiscal. These projects will be located in Chandigarh, Gurgaon, and in regions around Bangalore, Chennai and Hyderabad. As per the company, pricing of these homes will depend on the location and city (mostly below the Rs 5 m price range). As compared to the mid income and premium housing categories (which garner margins around 40%, the value housing segment will garner margins of about 25% to 30%.

As far as the matters related to DLF Assets (DAL) are concerned, it still owes DLF about Rs 25 bn. During the quarter ending September, about 10% of the revenues were contributed from DAL. It may be noted till last year, DAL was contributing to about 40% of DLF’s revenues.

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