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DLF: Revival in the commercial business - Views on News from Equitymaster

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DLF: Revival in the commercial business
Nov 11, 2010

DLF has announced its 2QFY11 results. Top-line increased 35% YoY while bottom-line declined 5% YoY during the quarter. Here is our analysis of the results.

Performance summary
  • Topline registered 35% YoY growth during 2QFY11 on the back of strong sales booking. The company booked 2.0 msf of area in 2QFY11 as compared to 1.9 msf in 1QFY11. On a sequential basis revenues showed an improvement by registering growth of 17% QoQ.
  • Operating margins declined drastically to 39% in 2QFY11. This was mainly due to increase in overall expenditure as a percentage of sales and input cost pressures.
  • Net profits declined 5% YoY in 2QFY11 due to increase in depreciation and interest expenses. However, on a sequential basis profit growth was relatively flat.
  • Total developable area stands at 406 m sqft at the end of the quarter as compared to 413 m sqft at the end of the preceding quarter


(Rs m)  2QFY10   2QFY11  Change  1HFY10   1HFY11  Change
Sales       17,509          23,690 35.3%        34,008          43,976 29.3%
Expenditure         8,371          14,401 72.0%        17,429          24,891 42.8%
Operating profit (EBDITA)         9,138            9,289 1.7%        16,579          19,085 15.1%
Operating profit margin (%) 52.2% 39.2%   48.8% 43.4%  
Other income            594            1,509 153.8%          1,555            2,830 81.9%
Interest         2,486            4,338 74.5%          5,360            8,222 53.4%
Depreciation            766            1,540 101.1%          1,500            3,038 102.6%
Profit before tax 6,481 4,920 -24.1% 11,275 10,654 -5.5%
Tax 1,918 734 -61.7% 2,911 2,413 -17.1%
Minority interest           (123) (69)                  42              (101)  
Share in profit/(loss) of associates                 4 (1)                  (2)                  53  
Prior period items             (47) 67                (47)               100  
Profit after tax/(loss) 4,397 4,184 -4.9% 8,357 8,294 -0.8%
Net profit margin (%) 25.1% 17.7%   24.6% 18.9%  
No. of shares (m)           1,697.1        
Basic earnings per share (Rs) *                2.47        
P/E ratio (x) *                34.3        
* On a trailing 12-months basis

What has driven performance in 2QFY11?
  • DLF registered a 35% YoY growth in revenues during 2QFY11. The company booked nearly 2.0 m sqft of property in its developmental business (residential and commercial complexes), as compared to 1.9 m sqft recorded in the preceding quarter. Under the annuity business, DLF booked 1.56 m sqft as compared to 0.98 m sqft in 1QFY11. DLF currently has 41 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 fall in realizations for its developmental business particularly in the residential segment. Even on a sequential basis, the realizations in the residential segment were relatively flat. However, realizations on the commercial space increased 29% YoY during the quarter. Margins in its residential business stood at 59% while margins in the commercial space stood at 68% during the quarter. As for the annuity business, the average lease rates in the office and retail segment declined on a sequential basis.

  • During 2QFY11, DLF’s operating profits increased 1.7% YoY. Operating margins stood at 39.2% in 2QFY11 as compared to 48.3% in 1QFY11. Net profits declined 5% YoY mainly due to burgeoning interest and depreciation expenses. Interest and depreciation cost rose 74.5% YoY and 101.1% YoY, respectively.

What to expect?
At the current price of Rs 346, the stock is trading at a multiple of 34.3 times its trailing 12-month earnings. Going forward, management expects to maintain EBITDA at stable levels and further strengthen the cash flows of the company. However, increase in commodity prices could play spoilsport.

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 4.1 bn during the quarter through sale of non-core assets and has plans to divest Rs 20 bn over the next 12-18 months. Cash flow arising from sale of noncore assets will be used to repay debt. The net debt/equity ratio at the end of the quarter stood at 0.73x, with an average cost of debt in the region of 10.5%.

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