2. COMPANY’S PROFILE
• DLF (DELHI LEASE AND FINANCE LTD) is India's biggest real estate
developer based in New Delhi
• Founded by Raghuvendra Singh in 1946
• They develops residential colonies, apartments , offices and malls
etc.
• Shivaji Park, Rajouri Garden , South extension, Krishna Nagar are
some of their projects which they had completed in their initial
phase
• They 1957,DLF diversified their business into batteries and cables
due to passage of Delhi Development Act.
3. Contd..
• After ban in Delhi they shifted their epicenter and
started acquiring land in Gurgaon on relatively low cost
and came up with DLF City in 1970
• Even after 2008 crisis DLF managed its working capital by
adopting strategies to maintain its liquid position.
• DLF earned Super brand ranking due to its commitment
to quality ,timely delivery with agility and financial
prudence
4. WHAT IS WORKING CAPITAL
• Working capital refers to the funds invested in Current assets
, sundry debtors, inventories , cash and bank balance
• It is the fund required to support day to day operations such
as purchase of raw materials , payments of wages and
defraying other expenses for operations
• Working capital = Current assets – Current liabilities
• It measures how much in liquid assets a company has
available to build its business.
5. Contd…
• Positive working capital is required to ensure that a firm is able
to continue its operations and that it has sufficient funds to
satisfy both maturing short-term debt and upcoming
operational expenses.
• The management of working capital involves managing
inventories, accounts receivable and payable and cash.
• An increase in working capital indicates that the business has
either increased current assets (that is received cash, or other
current assets) or has decreased current liabilities,
6. FACTORS AFFECTING WORKING
CAPITAL REQUIREMENT
Nature of Business
Size of business
Production policy
Operating efficiency
Credit policy
Dividend policy
Growth and expansion
Abnormal factor –strikes, lockout, inflation Etc
8. WORKING CAPITAL CYCLE
• Cash flows in cycle into, around and out of business and
hence should generate operating profitability & emphasize on
cash surplus to carry out operations
• Efficient management of working capital will generate cash,
improve profits and reduce risk
• Two elements that absorb cash Inventories (stocks and work
in progress) and Receivables(debtors owing you money)
• Main sources of cash are Payable (creditors) and Equity and
loans
9. WORKING CAPITAL MANAGEMENT
• Decisions relating to working capital and short term
financing are referred to as working capital
management. Short term financial management
concerned with decisions regarding to CA and CL.
• Management of Working capital refers to management
of CA as well as CL.
• If current assets are less than current liabilities, an entity
has a working capital deficiency, also called a working
capital deficit.
• These involve managing the relationship between a
firm's short-term assets and its short-term liabilities.
10. The fundamental principles of working
capital management
Reducing the
capital
employed
Debtors
Management
(recievables) to
increase cash
flow
Short term
financing-loans
utilization, cash
conversion
cycle
Creditors
management
(payables)
Cash
management
11. “A firmmust have adequateworkingcapital
neitherexcessivenor inadequate andexcessive
fundsmay leadto no profitfor firm”
ADVANTAGES
Goodwill Creditability
Creates
environment
of security,
confidence
Maintains
solvency and
liquidity
DIASADVANTGES
Unnecessary
accumulation of
inventory
Indicates
defective credit
policy
Inefficiency
Excessive W.C
meant idle
funds which
may decrease
return on
investment
12. DLF’s INVESTMENT IN WORKING
CAPITAL
• DLF, the leader of the real estate industry in terms of
revenue, earnings, market capitalisation and developable
areas.
• Company made its Initial Public Offering(IPO) fixed the
IPO price at INR 525 per share July 2007.
• DLF’s business model is mix of both development &
rental earnings with multi-business and multi-segment
within each business.
• Business verticals are organised and operated in
independent manner .
13. Contd..
• It had grown tremendously in terms of its revenues and net
income
• The revenues of the company has grown at a CAGR of
174% from INR 19,602 million in 2006 to INR 146,839
million in 2008
• Net income has grown from INR 4,094 million in 2006 to
INR 78,120 million in 2008
14. Total Super
Metros
Metros Tier-1 Tier-2
Segment
Office 164 64 70 26 5
Retail 92 33 36 14 9
Super
Luxury
4 4 0 0 0
Luxury 41 33 6 1 0
Mid
income
432 113 231 73 16
Hotel 18 4 2 10 2
Grand
Total
751 251 345 123 32
15. Effect of Economic Slowdown…
•Revenue declined by 28.96%(2009)
•Net Profit margin decrease to 42.848%
•Cost of generating revenue was 31.42% of revenue in
2009
•High interest rates increased the finance cost from
INR 3,099 to INR 5,584 Million
16. DLF STRAGIES TO MAINTAIN W.C CYCLE
• Timely delivery of pre-sold or leased projects
• Developed and delivered 7 million sq.ft of area to its
customer
• Exited from long gestation projects like Bidadi
• Differed 27 million sq.ft for office and retail development
• Shifted the hotel development plans for next 15-18 months
• Surrendered 4 out of SEZ’S
• Started focusing on mid-income housing to generate cash
flow from its operations
• Gross margin on the project stood at 20% - 25%
• Overall cost reduction 15%-20% benefited the customers
17. Contd..
• They tied good amount of capital in raw materials, work in
progress and technology
• Centralization of cash credit system and for working
capital requirements estimation of expenses is made and
budget is prepared on the basis of cash inflows and
outflow
• Tracking of receivables and payables to track money
received as advance , dispatch of finished good and
money recoverable
• They also planned to raise INR 5500cr by sale of non core
assets
18. ANALYSIS AND IMPACT OF
STRATEGIES
• In 2009, Short term borrowings decreased by 32.31% and
long term borrowings increased by 50% amounting to INR
147,629m
• Gross working capital increased to INR 316,224 million
• Company attained enough liquid assets to meet short term
obligations as a result they also extended more credit period
to its suppliers
• Inventory processing period reached 357 days whereas its
1,134 for sector and 822 days for Ansal
• Total receivables (Drs) amounted to INR 96,291 billion with a
conversion period of 160 days
• DLF attained best cash conversion cycles in Sector
19. Ratios Analysis at Glance
CURRENT RATIO: Ability to pay debt
CURRENT ASSEST/CURRENT LIABILITY
QUICK RATIO: using near cash or quick assets to retire liabilities
Should be greater then 1 shows liquidity of firm
= (CA-INVENTORY)/CL
MAR 06 MAR 07 MAR 08 MAR 09
1.58 1.46 1.39 1.30
MAR 06 MAR 07 MAR 08 MAR 09
1.22 1.17 1.11 1.02
20. WORKING CAPITAL RATIO
PARTICULARS MAR
07
MAR
08
MAR
09
WORKING CAPITAL TURNOVER
RATIO= COGS/NET WORKING
CAPITAL
2.14 2.14 2.80
INVENTORY TO WORKING
CAPITAL=Inventory/Working
Capital
0.62 1.52 0.91
Ratio of Current Assets
toFixed Ratio=CurrentAssets/
Fixed Assets
16.24 16.90 14.01
21. • Working capital turnover ratio is fluctuating due to the
fluctuating cost of capital& amount of net current assets. For
the first two financial years the ratio remained constant as the
proportion of increment of cost of capital & w/c is same as
the previous year’07. The overallratio does not indicate any
steady growth of w/c.
• Inventory to working capital ratio has increased in 2008-09
due to the increase in cost of inventories.
• Ratio of current assets to fixed assets is gradually decreasing.
It is because of the increase of fixed assets. It indicates the
strong fixed assets in the company balance sheet.
