DLF –STRATEGIC ANALYSIS
INDEX PAGE NOS
ANALYSIS OF THE EXTERNAL ENVIORNMENT 11
DLF'S STRENGTH AND WEAKNESS 14
DLF'S IPO LAUNCH IN 2007 16
DLF'S STRATEGIC DECISION 20
HYBRID MODEL AND SHAREHOLDING PATTERN 23
ANALYSIS OF THE INDIAN ECONOMY WITH RESPECT TO REAL ESTATE 26
CASH FLOW STATEMENT 30
FINANCIAL STATEMENT 31
The DLF Group, is India's largest real estate company in terms of revenues, earnings, market
capitalization and developable area. It has a 62-year track record of sustained growth, customer
satisfaction, and innovation. The group has over 231 msf of completed development and 423 msf of
planned projects, and has pan India presence across 32 cities.
DLF's primary business is development of residential, commercial and retail properties. The company
has a unique business model with earnings arising from development and rentals. Its exposure across
businesses, segments and geographies, mitigates any down-cycles in the market. DLF has also forayed
into the infrastructure, SEZ and hotel businesses.
The business of DLF is organized on a SBU basis. The Homes SBU caters to 3 segments of the
residential market - Super Luxury, Luxury and Mid-Income. The product offering involves a wide range
of products including condominiums, duplexes, row houses and apartments of varying sizes. DLF has
214 msf of developed area under homes and residential plots. Currently, DLF has more than 319 msf of
land resource targeted towards residential business.
The Office SBU took DLF across the country, predicated on the customer demand for office space at
different geographic locations. Nearly 17 msf of ongoing projects forms a strong portfolio for DLF
The Retail Mall's and Commercial Complexes SBU is a major thrust area for DLF. Currently, DLF is
actively creating new shopping and entertainment spaces all over the country. The company has 12 msf
of retail projects and commercial complexes under construction.
DLF Hotels has also entered into a JV with Hilton to set up a chain of business hotels and service
apartments across India. DLF holds 74% and Hilton holds 26% equity in the JV.
DLF has a strong management team running independent businesses, though complementing each other
in cases of opportunities of mixed land use. DLF's mission is to build a world-class real estate
development company with the highest standards of professionalism, ethics and customer service and to
thereby contribute to and benefit from the growth of the Indian economy.
RETAIL OFFICE COMMERCIAL HOTELS HOMES RESIDENTIAL
Vision, Mission & Values
To contribute significantly to building the new India and become the world’s most valuable real estate
To build world-class real-estate concepts across six business lines with the highest standards of
professionalism, ethics, quality and customer service
• Sustained efforts to enhance customer value and quality
• Ethical and professional service
• Compliance and respect for all community, environmental and legal requirements.
The following map illustrates the locations of our developments, projects and lands across India, as of
November 30, 2006:
Code of Conduct
DLF Limited and its subsidiaries (‘hereinafter referred to as the ‘Company’) is a leading professionally
managed Company emerging as the one of the foremost enterprise in real estate development. It has
over 60 years of experience, an established brand name, a highly experienced, qualified and motivated
management team with a high reputation for project execution. The formation and management of many
subsidiary and partnership companies is considered necessary in real estate development to ensure
effective governance in dealing with legal and commercial requirements.
The Company’s philosophy on Corporate Governance is built on a rich legacy of fair, transparent and
effective governance. This includes respect for human values, individual dignity and adherence to
honest, ethical and professional conduct. This enables customers and all stake holders to be partners in
the Company’s growth and prosperity.
The Company’s Code of Conduct not only ensures compliance with the Company Law, the provisions
of the listing agreement with Stock Exchanges and other laws, but goes beyond to ensure exemplary
Corporate Governance. Accordingly, the Board of Directors of DLF Limited have adopted the following
code that details the following:
• Guidance on ethical standards of conduct on various matters including conflict of interest,
acceptance of positions of responsibilities, treatment of business opportunities etc.;
• Responsibility to comply with Insider trading regulations and applicable laws and regulations;
• Procedure for annual affirmations to the Code of Conduct by Directors and the Senior
This code of conduct document has been created in furtherance of the Company’s commitment to
building a strong culture of corporate governance by promoting the importance of ethical conduct and
transparency in the conduct of its operations. This code lays down the standards of conduct that shall
apply to its Directors and all Employees of the Company and shall come into force with effect from 21st
day of March, 2007.
The definitions of some of the key terms used in this Code are given below
i. “Director” means any Executive, Non-Executive, Nominee or Alternate Director of the
ii. “Employee” means any employee or officer of the Company.
iii. “Relative” means ‘relative’ as defined in Section 2(41) and Section 6 read with schedule 1A of
the Companies Act, 1956.
iv. “Senior Management” means personnel of the Company who are members of its Core
Management team excluding the Board of Directors and shall include all personnel above the level
of Vice-President and all function heads.
This Code is applicable to the following:
a. All Employees of the Company including Senior Management; and
b. All Directors of the Company.
This Code does not address every possible form of unacceptable conduct and it is expected that the
Directors and the Employee shall apply their sound judgment to comply with the principles set forth in
5. Standards of Conduct
The Directors and employees shall conduct the Company's business in an efficient and transparent
manner in meeting its obligations towards the shareholders and other stakeholders. The Directors and
employees shall not be involved in any activity that would have any adverse effect on the objectives of
the Company or against national interest. The following elucidates the Company’s position on the
manner of conduct of the Company’s business and transactions:
a) Compliance with applicable laws
DLF requires that its employees and Directors strictly comply with the applicable laws and regulations
in the conduct of its business, both in letter and spirit. If the ethical standards set forth in this policy are
more rigorous than the applicable laws and regulations, then the standards of the DLF Code of Conduct
b) Conflict of Interest
Conflicts of interest may appear where on account of either on undertaking or in the act of influencing a
business transaction, relationship, or an activity, the Director or Employee is in a position to derive a
personal benefit for himself or for a relative or a related party (as described in the Companies Act,
1956). It includes instances where the independent judgment of such a Director or Employee to work
towards the best interests of the Company may be or perceived to be impaired.
In case of an Employee, where such conflict appears at any time or is in existence at the time of the
implementation of this policy, such Employee shall forthwith make a disclosure in writing to the Chief
Executive (Corporate Affairs), who in turn shall compile such disclosures for review by the Corporate
Governance Committee. Upon review by the Corporate Governance Committee, the Employee may be
directed to avoid/resolve the conflict or to take such remedial action as is deemed suitable by the
Corporate Governance Committee.
A Director shall disclose any potential conflicts of interests to the Board of Directors or any Committee
thereof and abstain from participating in the decision making or in influencing the decision on the areas
resulting in the potential conflict of interest in accordance with the applicable rules under the Companies
Act. In addition, the Director shall provide on a periodic basis, such disclosure as is required by the
Board of Directors or any Committee thereof.
c) Business opportunities
The Directors and Employees are hereby prohibited from taking for themselves personally, any
opportunities that are discovered through the use of Company’s property, information or position, unless
the opportunity is disclosed fully in writing to the Corporate Governance Committee and the Corporate
Governance Committee authorizes the said Director or the Employee to pursue such opportunity.
The Directors and Employees are also prohibited from competing directly with the business of the
d) Acceptance of Employment / Position of responsibility
Employees are expected to devote their total attention to the business interests of the Company. Prior
approval of the Corporate Governance Committee must be sought in writing prior to accepting any
position of employment or responsibility (such as Directorship etc.) outside the Company.
Directors other than Non-Executive and Independent Directors are required to obtain the express
approval of the Corporate Governance Committee prior to accepting any Directorship outside the
e) Insider Trading and fraudulent & unfair practices in the securities market
A Director or the Employees and their relatives shall not derive any benefit or assist others to derive any
benefit from the access to and possession of information about the Company, which is not in the public
domain and thus constitutes insider information. They shall also ensure compliance with SEBI
(Prohibition of Insider Trading) Regulations, 1992 as also other regulations as may become applicable to
them from time to time in addition to the Company’s Policy for Prevention of Insider Trading.
The Company also prohibits its Directors and Employees in undertaking any fraudulent or unfair trade
practice in connection with the securities of the Company.
f) Financial reporting and disclosures
The Company is committed to ensuring that its financial statements and reporting:
i. Does not contain any untrue statement;
ii. Does not omit any material fact or has contents that might be misleading; and
iii. Strives to present a true and fair view of the Company's affairs in compliance with the prevailing
Accounting Standards and applicable laws and regulations.
The Directors and Employees shall ensure that there shall be no willful omission of any Company
transactions from the books and financial records and all required information shall be provided to the
g) Health, Safety and Environment
The Company strives to provide a safe and healthy working environment and comply, in the conduct of
its business affairs, with all regulations regarding the preservation of the environment of the territory it
operates in. The Company is committed to prevent the wasteful use of natural resources and minimize
any hazardous impact of the development, use and disposal of any of the intermediaries or direct
materials used in its product and service offerings on the ecological environment.
h) Protection of the Company’s Assets
The Companies Assets shall be protected from theft, loss, damage or misuse and shall not be employed
for conducting any illegal activity or for purpose other than of conducting the business of the Company.
The Directors and the Employees shall not use the Company’s tangible assets such as equipment and
machinery, systems, facilities, materials etc. or intangible assets such as proprietary information,
relationships with customers and suppliers, etc. for their personal benefit or for the benefit of a related
DLF is committed to a fair and competitive free market system. The Directors and Employees of the
Company are prohibited to take any action that are anti-competitive or otherwise contrary to laws that
govern competitive practices in the marketplace.
j) Public Representation
It may be necessary to communicate information relating to the Company, its operations and
performance to its stake-holders, media, stock-exchanges etc. In all its public appearance with respect to
disclosing any information in relation to the Company’s activities or performance to any public
constituency such as the Media, financial community etc, the Company shall be represented only by
duly authorized personnel. This policy establishes that matters relating to public representation of the
Company shall be handled by the Chairman or Vice-Chairman or the Managing Director or the Head of
Corporate Communications department (or such person to whom the Head of Corporate
Communications has delegated his authority) or such persons as are authorized by the Board of
Directors or the Chairman. In addition, the Chief Financial Officer is duly authorized to make suitable
public representation in relation to financial matters. Where a Director or an Employee seeks to publish
a book, article or manuscript containing reference to the Company or its business/processes, such person
should obtain prior approval of the Corporate Governance Committee. The Committee may grant such
approval on terms and conditions that it may deem fit such as pre-review/changes to such publication by
the Committee, inclusion of disclaimers etc.
k) Confidentiality of Information
Any information concerning the Company’s business, its customers, suppliers, etc. to which the
Directors or the employees have access or which is possessed by the Directors and the employees, must
be considered privileged and confidential and should be held in confidence at all times, and should not
be disclosed to any person, unless
1. Authorized by the Board; or
2. The same is part of the public domain at the time of disclosure; or
3. It is required to be disclosed in accordance with applicable laws
l) Gifts and Donations
The Company, its Directors and Employees shall neither receive nor offer or make directly/indirectly
any illegal payments, gifts, donations or any benefits which are intended to obtain business or unethical
favours. However, the Directors or Employees may receive such nominal gifts which are customary in
nature or are associated with festivals.
m) Electronic Usage
Electronic resources provided to the Directors and Employees by the Company should only be used for
the conduct of the Company’s business. The Company prohibits any uses which are illegal or infringe
on the privacy of a person or result in the transmission of inappropriate messages. The Company also
reserves the right to monitor electronic usage and files on the system as and when deemed necessary.
n) Fair treatment of Employees, Working Environment and Child Labour
DLF is committed to recruiting, employing and promoting employees on the sole basis of the
qualifications and the abilities needed for the work to be performed, without regard to race, age, sex,
caste, national origin or any other non-relevant category.
DLF is furthermore committed to providing a working environment that is free from unlawful
harassment and prohibits any sexual harassment and harassment based on race, age, national origin,
caste, medical condition, childbirth or related condition, physical or mental disability or any other form
of harassment that is unlawful. Where the employee has been unlawfully harassed, he/she should submit
a complaint to the Chief Executive (Corporate Affairs). Where an employee feels that he/she has been
sexually harassed, he/she shall submit a complaint to the ‘Officer’ designated for receiving these
It is DLF’s policy to offer to its employees a safe and healthy workplace. DLF is against all forms of
exploitation of children and believes in abiding by the laws and applicable regulations for prevention of
6. Consequences of non-compliance with the Code
The matters covered in this Code are of the utmost importance to the Company, its stockholders and its
business partners, and are essential to the Company's ability to conduct its business in accordance with
its stated values. We expect all of our Directors and Employees to adhere to these rules in carrying out
their duties for the Company.
The Company will take appropriate action against Director or the Employee whose actions are found to
violate these policies or any other policy of the Company.
7. Consultation and reporting
In case of any doubts/clarifications in relation to the application of the Code of Conduct, Employees are
requested to consult in writing with the Chief Executive (Corporate Affairs) in the Company. Where
Chief Executive (Corporate Affairs) in the Company or the Directors need any clarifications in relation
to the application of the Code of Conduct, they should consult in writing with the Corporate Governance
Where any Director or Employee notes an act inconsistent with the principles set forth in the Code of
Conduct, he should report the same to the Chief Executive (Corporate Affairs) in the Company. Chief
Executive (Corporate Affairs) in turn is required to compile all such instances in a report along with
suitable recommendation on the action required to the Corporate Governance Committee. Such report
should be presented at least on a quarterly basis or sooner, depending on the nature of the complaint.
Alternatively, the Director or Employee may use the Whistle-Blower mechanism provided by the
Company to report any instances of violation of the Code of Conduct.
8. Amendments and waivers
The Code may be amended or modified by the Board after due consultation with the Corporate
Governance Committee. Any waiver of any provision of this Code for a Director or the Employee must
be approved in writing by the Company's Board of Directors.
9. Acknowledgement and annual affirmation
Directors and Senior Management personnel shall acknowledge the receipt of this Code indicating that
they have received, read and understood, and agreed to comply with the Code and send the same to the
Chief Executive (Corporate Affairs). New Directors will submit such an acknowledgment at the time
when their Directorship begins and in case of other Management personnel when they assume the
responsibility of Senior Management personnel.
All the Directors and the Senior Management personnel to whom the Code applies shall, within 10 days
of close of every financial year affirm compliance with the Code indicating their continued
understanding of and compliance with the Code. The duly signed Annual Compliance Declaration shall
be forwarded to the Chief Executive (Corporate Affairs).
ANALYSIS OF EXTERNAL ENVIORNMENT
ASSESSMENT OF CHANGES IN THE ENVIORNMENT
ANALYSIS OF REAL ESTATE SECTOR
Real estate is one of the fastest growing sectors in India. Market analysis pegs returns from realty
in India at an average of 14% annually with a tremendous upsurge in commercial real estate on
account of the Indian BPO boom. Lease rentals have been picking up steadily and there is a
gaping demand for quality infrastructure. A significant demand is also likely to be generated as
the outsourcing boom moves into the manufacturing sector. Further, the housing sector has been
growing at an average of 34% annually, while the hospitality industry witnessed a growth of 10-
15% last year.
Apart from the huge demand, India also scores on the construction front. A Mckinsey report
reveals that the average profit from construction in India is 18%, which is double the profitability
for a construction project undertaken in the US. The importance of the Real Estate sector, as an
engine of the nation’s growth, can be gauged from the fact that it is the second largest employer
next only to agriculture and its size is close to US $ 12 billion and grows at about 30% per
annum. Five per cent of the country’s GDP is contributed by the housing sector. In the next three
or four or five years this contribution to the GDP is expected to rise to 6%.
The Real Estate industry has significant linkages with several other sectors of the economy and
over 250 associated industries. One Rupee invested in this sector results in 78 paise being added
to the GDP of the State. A unit increase in expenditure in this sector has a multiplier effect and
the capacity to generate income as high as five times. If the economy grows at the rate of 10%
the housing sector has the capacity to grow at 14% and generate 3.2 million new jobs over a
decade. The relaxed FDI rules implemented by India last year has invited more foreign investors
and real estate sector in India is seemingly the most lucrative ground at present. Private equity
players are considering big investments, banks are giving loans to builders, and financial
institutions are floating real estate funds. Indian property market is immensely promising and
most sought after for a wide variety of reasons.
FACTORS THAT EFFECTED REAL ESTATE SECTOR DURING RECCESION
Real estate sector is second to only the agriculture sector where employment generation is concerned.
This can be further proved by the fact that the real estate sector contributes a good 5% towards the
country’s gross domestic product (GDP). However, recent financial crisis followed by economic
slowdown have placed huge strain on this sector. While all sectors of the economy were under
tremendous pressure, demand in the real estate industry was the lowest. This was largely as majority of
the homes were taken on loan and an unexpected rise in the interest rate had its obvious impact.
According to KP Singh, Chairman, DLF, "If there is a lack in demand, the projects eventually close
down. There is a lack in demand because most people take mortgage loans. In fact, currently the interest
rate is at 11–12 per cent, which should actually not exceed seven per cent. This also leads to higher
Also, the credit freeze stemming from the collapse of Lehman Brothers prompted investors and
speculators to withdraw investments from this sector. Property developers, who raised funds through
external sources, were left stranded with minimal cash flows and huge debt obligations surfacing in the
There are several factors that have influenced the real estate sector's performance. Some of these factors
include the unemployment rate, income level, FDI investment, rise in the number of young working
population, and easy availability of home loans. With this industry being one of the primary contributors
to the GDP over the past few years, it is indeed interesting to note the performance of companies in this
sector during the economic slow down.
The sectoral ranking, based on consolidated revenues, revealed that top three companies within the
sector had retained their positions from the previous year. There have been major changes in the list of
market leaders as compared to last year. Out of the 10 companies in the previous year, only four retained
their position among India's top 500 companies. The current challenging economy along with the
sluggish demand had a significant impact on the top-line of most of the realty developers in the country.
Some of the companies that witnessed a substantial dip in revenues include Omaxe, Ajmera Realty,
Parsvnath Developers, Ansal Properties & Infrastructure, JMC Projects and Indiabulls Real Estate.
Collectively, no developer could sustain the revenues base recorded in FY’08.
DLF, Unitech and Housing Development & Infrastructure (HDIL), though witnessed >20% fall in
revenues, maintained their first, second, and third positions respectively in the ET sectoral list. This
means, the negative impact of the financial crisis affected all top real estate companies equally. Sobha
Developers climbed up three positions to number four, despite a 58% decline in revenues. Its steady
climb was primarily due to a sharp fall in revenues of other developers. Overall average revenues for
these developers fell by 28% from the previous year. According to Sanjay Chandra, managing director
of Unitech, “We have changed our strategy from maximisation of realisation to that of volumes in order
to improve operational cash flows.”
A closer look into the financials elucidate that developers faced stiff margin pressure, resulting from the
drop in real estate prices. Real estate prices have been sky rocketing for several years and a sharp
correction has been long overdue. Average net margins of the four developers slipped by a colossal 890
bps to 39.7%. This indicates that the companies faced higher liquidity pressure which consequently led
them to unwind inventories at lower rates. The companies which have huge land bank and are primarily
funded through external sources have been wiped out of the market and are yet recovering from losses
Valuations of the companies have bottomed out. The BSE realty index is trading at a Price/Book value
of 2.69x this year as compared to 21.11x in 2007 and 13.36x in 2008. Players like Unitech and DLF
have lost more than 75% of their values. DLF, which debuted the market in July 2007 entered the bear
phase and remained below its issue price. Recently, the markets have seen immense recovery with the
realty index gaining 88% from its previous low in 2008. The relaxed FDI regulation has invited several
players to invest in the real estate market. Various private players are considering investment in the
sector as banks are now readily giving loans due to a rise in the consumer confidence index. By 2010, it
is expected that nearly 150 million square feet of office space across urban India would be utilised by
the IT sector. The retail industry is also likely to utilise an additional 220 million sq ft by next year.
According to the Tenth Five-Year-Plan, there is a shortage of 22.4 million dwelling units. Thus, over the
next 10-15 years, 80 to 90 million residential units will have to be constructed with a majority of them
catering to middle- and lower-income groups. This will create immense opportunities for real estate
companies. “Now that property prices have dropped and the risk of job layoffs has diminished, the
service class is likely to actively participate in property absorption, leading to a strong recovery in
residential demand,” says Suman Memani, associate vice president, Religare Capital Markets.
In conclusion, with early signs of recovery currently reflected by the drop in unemployment rate, easing
liquidity and aggressive government initiatives to pull back the sector, increased activity in the real
estate sector should be expected.
DLF’S STRENGTH AND WEAKNESS
• Uniquely positioned in emerging, profitable segments:
• DLF has a sizable presence across several key cities (Delhi NCR, Mumbai, Bangalore, Chennai,
Kolkata, Chandigarh, Goa etc) and clear market leadership position in commercial, retail, and
• apartments. These segments are highly profitable and have significant entry barriers. The
estimated market share at ~16% in commercial offices and ~8% in retail space absorption in
India over the next 2 years.
• Better placed to face the macro challenges:
• Commercial, retail, luxury and premium housing account for 67% of DLF's estimated Gross
• Asset Value (GAV). Middle income housing segment accounts for just 24% of DLF’s GAV
(56% of the development area). This segment is more susceptible to emerging macro concerns
and challenges, and thus even 50% lower absorption v/s estimates would impact GAV by ~11%
• DLF huge land bank
• DLF’s current land bank stands at 13,055 acres (addition of 2,800 acres since filing of RHP) and
total developable area at 612m sq ft (addition of 43m sq ft). Recent land bank addition of ~2,800
acres has been done at Rs19.3b (average cost of Rs230/sq ft, assuming FSI of 1x). For DLF, land
cost stands at Rs154b, i.e. an average of Rs252/sq ft, which provides competitive advantages.
• Large companies such as DLF, which have holding power, are best positioned to take large bets
by acquiring large tracts of contiguous land, which could create value through ‘land bank ageing’
and ‘integrated development’. It is believed that this strategy will generate better returns, which
would lead to continuous upgrade in NAVs and allow for higher asset turnover.
• Successful implementation of monetization strategies will lead to lower capital costs and
create conditions for building integrated property business models, comprising property
development, re-development, acquisitions, divestitures, leasing and management
DLF due to its predominant positioning in the commercial office, retail and premium
apartment segments is relatively less vulnerable to the emerging macro challenges. We believe that a
significant part of the concerns pertaining to the sector are getting compounded in middle income housing
segment, which is more sensitive to prices and higher interest rates.
Any weaker-than-expected GDP growth for the domestic economy could negatively affect sentiment of
buyers, leading to elusive demand, which could render sales and earnings estimates for DLF unrealizable.
Also, any further tightening measures and policy changes by the government (with regard to mortgage
applications and approvals, project financing, and property pre-sales) to curb speculation
and overinvestment could adversely affect the bottom lines and cash flows of property developers and
sentiment of home buyers
Real risk of decline in property prices, and concentration in Gurgaon:
Conservatively, we have assumed ‘NO’ price increase in the NCR region for apartments during FY08-17 and
for commercial and retail during FY08-FY12. From FY13, we have assumed a price CAGR of 5% in
commercial and retail space in NCR. Other than NCR we have assumed stagnant prices for all projects and
all verticals (residential, commercial and retail) for FY08 and FY09. Given the sharp acceleration in real
estate prices over the past three years, there exists a real probability of a price correction in certain pockets.
Also, NCR region still accounts for 42% of the development area for the company, thus exposing it to
significant price movements in the region.
India Bulls HDIL Ackruti City Omaxe Group Unitech
Bombay Dyeing, Golden Tobacco and Century Textiles. There has been a precedent with groups like
Tata, Mahindra and Godrej having turned developers. The Tata group has Tata Housing and Tata Realty
while Mahindra’s venture is called Mahindra Lifespace Developers. Godrej’s venture goes by the name
of Godrej Properties.
A prominent case is that of Bombay Dyeing, a well known player in the textile business. While it has
entered the real estate business, it does not have a separate company in place.
DLF’S IPO LAUNCH IN 2007
The future grand plan after the IPO launch:
DLF has outlined a three-pronged growth strategy:
1} Strengthening its pan-India presence,
2} Building up land reserves at strategic locations, and
3}Leveraging its real estate capabilities in related areas be it special economic zones or hospitality.
The company will primarily be a developer and sell its properties retaining limited assets to be leased
out. The money raised through the IPO would go towards buying more land (Rs 3,500 crore -- Rs 35
billion), developing existing projects and repayment of loans.
Going by the scale of development done so far, DLF is the largest real estate player in the country with
land reserves of 10,255 acres or about 574 million square feet (msf) of developmental area. Of this, 171
msf is located in or near developed urban areas while 404 msf is urbanisable.
"About 90 per cent of the total land bank is available as large contiguous plots enabling large integrated
development", says, chief executive officer Rajiv Singh.
After being centered around Delhi for many years, the company now has a nation-wide presence across
31cities and towns. It has developed 29 msf of residential, commercial and retail projects and integrated
townships spread over 3,000 acres in Gurgaon so far. Currently, some 44 msf of development is under
progress and projects involving 524 acres is planned over the next few years.
The company intends to focus on its core competence while partnering with leading global players such
as Nakheel (SEZs), Laing O'Rourke (construction), ESP (engineering and design), Feedback Ventures
(project management) for better execution.
Right from acquiring low cost land to creating a full fledged township to realise the true potential of the
land, DLF has amply demonstrated its success in Gurgaon. One key advantage is that DLF's average
cost of acquisition of land is fairly low at around Rs 274 per sf which will enable it sit out the cycles and
not indulge in distress sale ever.
Some key determinants of profitability for real estate companies apart from the land cost, is the
developer's land acquisition and aggregation skills, relationship with the state authorities and reputation
-- on all these DLF scores highly.
And with its unquestionable capabilities as a successful developer, DLF seems best placed to capitalise
on the booming real estate market, which is expected to grow at 20 per cent-plus annually from the
current size of $40-45 billion.
Even more, the national capital region, where the company has over 50 per cent of its land holdings, is
among the fastest growing markets in the country.
Apart from the boom in retail malls and residential owning to rising disposable income, there are several
new vistas opening up for developers which DLF is planning to tap -- for instance, SEZs which offer
opportunities to create integrated townships, hotels and serviced apartments, multiplexes, airports and
the list goes on.
According to a newly devised strategy, the company would, instead of leasing out commercial projects,
indulge in outright sale to potential buyers including DAL. This model rests on the ground that DAL
would be able to garner low cost capital by tapping the alternative investment market overseas and pay a
higher capitalization rate for DLF's properties resulting in faster growth in revenues and better margins
Thus DLF wanted to apply cost differentiation leadership strategy where through economies of
scale they reduce the cost and achieve differentiation in each of its strategic business units.
KEY ELEMENTS OF ITS EXISTING BUSINESS STRATEGY
Â DLF has a 60-year history of service excellence. Since it was founded in 1946, it has been responsible
for the development of 21 urban colonies aggregating 5,816 acres, as well as an entire integrated 3,000-
acre township - DLF City.
DLF reputation for providing prompt payment to landowners upon the acquisition of its land,
developing and completing projects in a timely manner and conducting its business with transparency
has created a relationship of trust with its customers and suppliers. The company retains internationally
and nationally renowned architectural, construction and consulting firms for all its projects.
Extensive land reserves are the most important resource for a real estate developer. As of April 30, 2006,
DLF land reserves under development aggregated 1,372 acres representing approximately 102 million
square feet of developed area or area available for development and it has made partial payments to
acquire a further 2,893 acres in various regions across India. It is estimated that it will be able to develop
over 118 million square feet of saleable or rentable area.
The Company benefits from economies of scale and is able to purchase large plots of land from multiple
sellers, thus enabling it to aggregate land at lower prices. The company has the ability to anticipate
market trends and, in some cases, to influence the direction of such trends provides it with opportunities
to acquire strategic locations of their choice.
DLF is one of the first developers to foresee the need for townships on the outskirts of fast growing
cities and is credited with the growth of Gurgaon. The company is one of the early developers to focus
on developing theme-based projects such as The Magnolias in DLF City.
The Company has an experienced, highly qualified and dedicated management team, most of whom
have over 20 years experience in their respective fields. DLF encourages responsibility, autonomy and
innovation among its employees with an attractive compensation package
DLF’S SOME STRATEGIC DECISIONS
DLF Laing O’Rourke (India):
DLF Laing O’Rourke (India) Ltd is a joint venture between DLF, Laing O’Rourke Plc and LOR
Holdings Ltd. According to the agreement, the JV company would carry out development activities in
identified DLF projects for a built up space of 50m sq ft over five years with minimum of 6m sq ft each
calendar year. Laing O’Rourke will issue a corporate guarantee in favor of DLF to secure the
JV company’s performance under the projects.
Joint venture with Hilton:
DLF has entered into a joint venture with Hilton International for development and ownership of a
chain of hotels and serviced apartments in India. DLF will hold 74% and Hilton will hold 26% of the
equity share capital of the JV company, which would develop and own 50-75 hotels and serviced
apartments with an equity investment of US$550m over the next five to seven years.The hotels and
serviced apartments would be managed and operated by Hilton’s subsidiaries. DLF has agreed not to
develop and manage any hotels or serviced apartments that target the same market segment as of the JV
Joint venture with WSP Group:
The JV company has been established to provide engineering and design consultancy and project
management services for DLF’s real estate plans. Both DLF and WSP Group have equal shareholding in
the JV company and have identical rights and privileges. The JV company will provide consulting
services to DLF for an initial 18 months after which the JV company can target new clients in
India as agreed by the parties. WSP is permitted to provide independent services to its
current as well as new clients.
Acquisition of stake in Feedback Ventures:
Necia Builders and Developers Pvt Ltd, a subsidiary of DLF, has acquired a 19% stake in Feedback
Ventures at Rs72.5/ share. Feedback Ventures provides consulting, engineering, project management
and development services for infrastructure projects in India.
MoU with Nakheel:
DLF has signed an MoU with Nakheel LLC, a leading property developer in UAE, to develop real
estate projects in India through a 50:50 JV company.
The initial two projects of the JV company would be 20,000 acres SEZ each in NCR
and South Maharashtra and/or Goa.
Joint venture with Prudential Insurance:
DLF has entered into a joint venture with Prudential Insurance to undertake life insurance business in
India. DLF would hold 74% and Prudential would hold 26% of the equity share capital. DLF’s 30%
equity share capital and Prudential's entire shareholding would be locked in for seven years. Remaining
shareholding of DLF would be locked in for 10 years. After the lock-in period, if any shareholder
intends to transfer the shares, first offer should be made to the non-selling shareholder. No transfer of
share is permitted to the competitor.
Joint venture with MG Group:
DLF has entered into a 50:50 joint venture with MG group for real estate development. The board shall
consist of 4-12 members. Each party is entitled to appoint one half of the board. A non-executive
chairman would be nominated by DLF.
Joint venture with HSIIDC:
DLF has entered into a joint venture with HSIIDC for developing two SEZ projects. A SPV would be
created in the form of a limited company to implement the project. Shareholding pattern is 90% in favor
of DLF and 10% in favor of HSIIDC. The equity holding of DLF in the SPV cannot fall below 51% and
HSIIDC cannot increase it above 26%. In the event of initial public offering, DLF would contribute its
share for the lock-in period of three years and shares held by HSIIDC would be locked in for one year.
HSIIDC has the right to sell its shares and DLF has the first right to purchase it at market price. On
DLF’s refusal, HSIIDC would have right to offer the shares to the public.
Memorandum of Co-operation with Fraport AG Frankfurt Airport Services:
DLF has signed a MoC with Fraport AG Frankfurt Airport Services Worldwide to establish DLF Fraport
SPV. The SPV would focus on development and management of certain airport projects in India. The
shareholding of each party shall be mutually agreed such that each of parties shall hold not less than
26% in the management company.
DLF in talks with AT&T for mobile services
Real estate major DLF Ltd is talking to US telecom giant AT&T as a strategic partner to roll out pan-
India mobile services.
AT&T has also applied for a universal access service licence (UASL), which allows operators to offer
services in both GSM and CDMA technology, with the Mahindra & Mahindra group, for 22 circles. The
US company, however, has stipulated that it wants a majority equity stake in the mobile venture.
This will be AT&T’s second coming in India after it exited Idea Cellular a few years ago.
DLF had also applied for a pan-India licence on its own and without a foreign partner. A senior DLF
executive said: “We are in talks with various international telecom operators; all the big operators will
Sources close to the development, however, confirmed that DLF has been approached by AT&T. An
AT&T India spokesperson said: “We do not comment on market rumours or speculation.”
Insiders also said DLF is talking to other international telecom majors apart from AT&T.
With over 300 Indian companies applying for pan-India UASLs, the race is on to get international
partners with experience in the telecom sector as strategic partners. This is because the industry expects
the government to offer only two or three licences in each circle.
Hybrid business model
DLF has a hybrid business model, which is a blend of ‘sale and lease’. It is estimated
DLF’s rental income to increase from Rs6b in FY08 to Rs43b by FY12, comprising an
asset base of 46m sq ft in the commercial and retail verticals. The rental stream would enable the
company a steady income source and also provide monetization opportunities, leading to a long-term,
self -sustaining growth phase.
NO. OF SHARES % OF TOTAL
PROMOTERS 1502823120 88.26%
INSTITUTION 124231366 7.30%
PUBLIC 75657427 4.44%
GRAND TOTAL 1702711913 100%
CHANGE IN TOTAL INCOME QoQ:
CHANGE IN OPERATING INCOME QoQ:
CHANGE IN NET PROFIT QoQ:
30/09/07 31/12/07 31/03/08 30/06/08 30/09/08
EPS 4.50185 3.558407 3.75022 4.117167 3.752981
OPM 63.51832 52.03052 50.83347 68.86187 72.49094
NPM 59.77961 33.42675 36.35313 46.92742 46.88816
COVERAGE 13.90027 7.221565 4.851037 5.495604 5.100798
EPS is showing declining trend in the last five quarter.
OPM has declined earlier from 63% to 52% but later got recovered. Same trend was also witnessed in
the NPM earlier shown a decline but later shown a recovery.
Interest coverage has shown consistent decline. It has declined from 13 to 5 in just five quarte
Analysis of the Indian economy with Respect to Real Estate Sector
According to the United Nations Population Fund (UNFPA),India is getting urbanised at a faster rate
than the rest of the world and by 2030 more than 40.7 per cent of the country’s population would be
living in urban areas. Presently, more than 28.7 per cent of India’s area is urban as against the
global average of 48.7 per cent. However, the growth rate of urban areas was 2.3 per cent in 2005, as
against the world average of 2 per cent. The urban population of India was
estimated to stand at 316 million in 2005 and is the second largest in the world after China. It is
estimated to reach 590 million by the year 2030 retaining its second position.
India’s cities have been the driving force in shaping India’s socio-economic profile. Urban areas which
constitute only 28.7 per cent of the population, have been a major contributor to
the GDP with a major share of industry and almost the entire services sector concentrated in the urban
During the last sixty years, post independence the population of India has grown two and a half times,
whereas urban India has grown by nearly five times. According to Census of India 2001 estimates, 30
per cent of the total population of India would be living in urban areas by 2011. The number of cities
with one million plus population is further expected to double from 35 in 2001 to 70 by 2025.
India’s ‘Mega-Cities’ of Mumbai and Delhi would be the world’s 2nd and 3rd largest cities by 2015.
With a rapid influx of migrants in these cities there is a corresponding increase in the demand for space.
Rapid urbanisation is fostering real estate growth in India.
Increasing number of households
The growing popularity of nuclear families in India has decreased the average household (HH) size in
the country, leading to an increase in the number of households in the
country. The average HH size in India has declined from 5.4 persons per HH in 1981 to 5.1 persons per
HH in 2001. In 2001, there were roughly 192 million HH in India, about 40 million more than those in
Growing number of first-time home buyers
India has a much younger population compared to mostother economies. Currently the population in the
working age group (16-65 years) is about 700 million representing
about 64 per cent of the total population. India is expected to emerge as the highest contributor
to the global work force by 2010. Given that a majority of the population would still be young the per
capita income generation capability of India would continue to remain
robust. With the average age of home buyers declining fast the young working population would further
push demand for housing units higher.
First-time home buyer numbers have multiplied over the years and the median age of home buyers has
reduced from 38 years in the early 1990s to about 28 years today.
Increasing income levels:
The per capita disposable income has grown manifold in the past one decade. The current annual per
capita disposable income stands at around US$ 693 and is further expected to grow by 8-13 per cent in
the next five years.
Robust economic growth, particularly in the services sector has led to an increase in income levels in the
country. Several studies have indicated that salaries in India have been increasing by an average of 10-
15 per cent on a year on- year basis. This has increased the affordability of homes in spite of higher
property prices and has further created more discerning buyers
Affordability of housing:
As per estimates from the National Council of Applied Economic Research (NCAER) the proportion of
HH in the top five income brackets (>US$ 11,651 per annum) has increased from 0.6 per cent in 1996 to
2.4 per cent in 2006 and is likely to increase further to 4.5 per cent by 2010. Also, the number of HH in
the top four income brackets (>US$ 23000 per annum) is expected to grow at a CAGR of over
20 per cent till 2010. Thus, housing is expected to become increasingly affordable especially in the mid-
market and premium segments.
Retail Real Estate:
The Indian retail industry is witnessing a structural change with individual small format stores making
way for large format shopping malls and hyper-markets. On the policy front, the partial relaxation in
FDI regulation (51 per cent FDI in single brand retailing) has provided a boost to the
Presently the top seven cities of India account for a dominant share in mall space. The total organised
retail space absorbed for the year 2006-07 in the top seven cities was around 19 million sq. ft. The
following chart depicts the absorption scenario of organised retail space for the year
2006-07. National Capital Region (NCR), one of India’s most affluent urban centres, dominates the
absorption scenario followed by Mumbai and Kolkata. Bengaluru is also emerging
as a major retail hub owing to its cosmopolitan character
Special Economic Zones (SEZ):
Following the success of China in boosting manufacturing exports, India has adopted the SEZ model
albeit with private participation to provide world class infrastructure to boost
its industrial export performance.
With the fiscal benefits extended to IT Parks expected to end in 2009 several upcoming and proposed
SEZs are expected to provide the next generation impetus to the IT commercial office space
development in the country.
Offering significant fiscal benefits, SEZs are being preferred by the IT/ITES and other services sectors.
IT/ITES sector accounts for more than 50 per cent of the approved or notified SEZs. 2006-07.Till date
under the new SEZ policy, formal approvals have been granted to 366 SEZ proposals out of which 142
have already been notified as SEZs as on 30th August, 2007. In addition, around 176
proposals have been granted in-principle approvals.
In terms of industry focus, Information Technology (IT) and Information Technology Enabled Services
(ITeS)/ Electronics/Hardware sector witnessed the maximum number
of approvals followed by Bio-technology, Engineering etc.
With respect to type of SEZs, almost 90 per cent of the SEZs approved, were sector specific followed by
multi-product (5 per cent), multi-services (2 per cent) and FTWZ (1 per cent).
Geographically, the maximum number of approvals were bagged by the State of Maharashtra (75)
followed by Andhra Pradesh (61), Tamil Nadu (53) and Karnataka (36).
In a recent move the Government has withdrawn the freeze on new approvals however at the same time
the rules have been tightened by capping the land size to a maximum of 5,000 hectares in case of a
Rea l Estate Opportunities:
• Health Cities: Large scale integrated development
• Hospitals: combining the services of a hospital and a
Low-cost Budget Housing:
As per the Working Committee of the 11th Plan (2007-12) the total shortage of dwelling units at the
beginning of Eleventh Plan Period i.e. 2007 was 24.7 million. As per the estimates by National Housing
Bank (NHB), going forward, the gap of housing unit shortage would further widen to about 45 million
units during the Eleventh Plan (2007 – 2012) period E&Y estimates that more than 70 per cent of
the shortage of dwelling units is for middle and low income brackets.
Rea l Estate Opportunities
• Mass housing.
CASH FLOW STATEMENT
Y/E MARCH 2006 2007 2008 2009 2010E
PBT before Extraordinary Items 3,595 25,495 71,370 92,196 110,974
Add : Depreciation 361 571 828 1,090 1,380
Interest 1,685 3,076 1,575 0 0
Less : Direct Taxes Paid 1,668 6,058 11,807 21,012 30,951
(Inc)/Dec in WC -16,545 -67,432 10,738 117,642 24,551
CF from Operations -12,572 -44,348 72,704 189,917 105,954
(Inc)/Dec in FA -7,194 -25,400 -65,817 -29,546 -39,884
(Pur)/Sale of Investments -7,900 6,193 0 0 0
CF from Investments -15,094 -19,207 -65,817 -29,546 -39,884
(Inc)/Dec in Networth -767 13,044 76,072 -6,819 -6,819
(Inc)/Dec in Debt 31,644 58,008 -64,328 -35,000 0
Less : Interest Paid 1,685 3,076 1,575 0 0
Dividend Paid 0 2,216 13,580 16,230 18,245
CF from Fin. Activity 29,192 65,760 -3,411 -58,049 -25,065
Inc/Dec of Cash 1,526 2,205 3,476 102,321 41,005
Add: Beginning Balance 424 1,950 4,155 7,631 109,952
Closing Balance 1,950 4,155 7,631 109,952 150,957