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DLF: Volumes decline sharply

Dec 2, 2011

DLF has announced the second quarter results of financial year 2011-2012 (2QFY12). While the topline increased 6.9% YoY bottom-line declined 11.0% YoY during the quarter. Here is our analysis of the results.

Performance summary
  • Topline registered a 6.9% YoY growth during 2QFY12. The company booked 1.28 million square feet (msf) of area in its developmental (residential and commercial complexes) business while leased out 0.66 msf during the quarter.
  • Operating margins improve drastically to 46.3% in 2QFY12 due to a fall in weighted average cost across projects, especially in the developmental business.
  • Net profits declined 11% YoY in 2QFY12 due to fall in other income and increase in depreciation as well as interest expenses.
  • As of 30th September 2011, the company has a development potential of approximately 359 msf.

Consolidated financial snapshot
(Rs m) 2QFY11 2QFY12 Change 1HFY11 1HFY12 Change
Sales 23,690 25,324 6.9% 43,976 49,782 13.2%
Expenditure 14,401 13,594 -5.6% 24,891 26,943 8.2%
Operating profit (EBDITA) 9,289 11,730 26.3% 19,085 22,840 19.7%
Operating profit margin (%) 39.2% 46.3%   43.4% 45.9%  
Other income 1,509 448 -70.3% 2,830 1,022 -63.9%
Interest 4,338 5,263 21.3% 8,222 10,227 24.4%
Depreciation 1,540 1,753 13.9% 3,038 3,455 13.7%
Profit before tax 4,920 5,161 4.9% 10,654 10,179 -4.5%
Tax 734 1,475 100.9% 2,413 2,753 14.1%
Minority interest (69) 0   (101) (165)  
Share in profit/(loss) of associates (1) (5)   53 37 -30.8%
Prior period items 67 42 -37.6% 100 10 -89.7%
Profit after tax/(loss) 4,184 3,724 -11.0% 8,294 7,308 -11.9%
Net profit margin (%) 17.7% 14.7%   18.9% 14.7%  
No. of shares (m)         1,697.8  
Basic & diluted earnings per share (Rs)         4.3  
P/E ratio (x) *         23.9  
* On a trailing 12-months basis
  • DLF registered a 6.9% YoY growth in revenues during 2QFY12. It may be noted that the company sold 1.28 msf in 2QFY12 compared to 2.25 msf in 1QFY12 due to the current slowdown in real estate sector. Under the annuity business, the company booked 0.66 msf during the quarter compared to 0.97 msf in 1QFY12. DLF currently has 40 msf of area under construction in its developmental business and 13 msf in the annuity business.

  • During 2QFY12, DLF's operating profits increased 26.3% YoY. Operating margins stood at 46.3% in 2QFY12 as compared to 39.2% in 2QFY11. The rise in operating profits was mainly due to a fall in the weighted average project cost, especially in the developmental business.

  • Net profits declined 11% YoY mainly due to rise interest and depreciation expenses. Interest and depreciation cost rose 21.3% YoY and 13.9% YoY, respectively. The tax rate also increased to 28.6% in 2QFY12 from 14.9% in 2QFY11 due to deferred tax adjustments.

What to expect?
At the current price of Rs 211, the stock is trading at a multiple of 23.9 times its trailing 12-month earnings. Going forward, the rising interest rate environment could result in higher borrowing cost. However, the company has been working consistently on reducing its debt burden (and thus interest costs) by ‘unlocking value' in its non-core assets. It has plans to unlock Rs 60-70 bn over the next 2-3 years by divesting these assets. While this is expected to ease cash flow constraints to some extent, overall slowdown in the real estate sector (low volumes and higher pricing) continues to remain an overhang. Apart from this, rise in debt levels is another area of concern. As of 30 September 2011, total net debt on the company's balance sheet was about Rs 225.1 bn. The debt levels have increased from the previous quarter (Rs 215.2 bn) due to deferment in divestment proceeds, foreign exchange fluctuations and bunching up of few payments in the current quarter. Progress on the divestment strategy and future debt position remain the key areas to monitor in the near future.

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