DLF

1QFY2011 Result Update | Real Estate
July 29 2010

DLF NEUTRAL
CMP Rs309
Performance Highlights Target Price -
Y/E March (Rs cr) 1QFY11 1QFY10 % chg yoy 4QFY10 % chg qoq Investment Period -
Net sales 2,029 1,650 23.0 1,994 1.7
Stock Info
EBITDA 980 744 31.7 1,000 (2.0)
OPM margin 48.3 45.1 320bp 50.1 184bp Sector Real Estate
PAT 411 396 3.8 426 (3.6) Market Cap (Rs cr) 52,670

Source: Company, Angel Research Beta 1.6
DLF’s 1QFY2011 results were marginally below our expectations on account of 52 Week High / Low 491/252
higher interest and depreciation expenses. DLF reported worst residential volumes Avg. Daily Volume 2,424,047
(1.44mn sq ft) since 4QFY2009 on account of subdued new launches and Face Value (Rs) 2
management citing delay in approvals. During the quarter, DLF purchased BSE Sensex 17,992
compulsorily convertible preference shares (CCPS), which were earlier issued by
Nifty 5,411
DAL to SC Asia for Rs3,085cr. This resulted in an increase in net debt from 0.8x
Reuters Code DLFL.BO
in 4QFY2010 to 0.81x in 1QFY2011. The silver lining was seen in leasing
volumes, which stood at 1.2mn sq ft, which was more than the leases booked in Bloomberg Code DLFU@IN
FY2010. We maintain our Neutral rating on the stock.
Higher interest cost and depreciation drags profitability: DLF reported revenue Shareholding Pattern (%)
growth of 23.0% yoy (up 1.7% qoq) to Rs2,029cr, in line with our expectations.
Promoters 78.6
OPM stood at 48.3% (up 320bp yoy), much above our estimate (45.0%) possibly
MF / Banks / Indian Fls 2.0
due to contribution from high-margin projects. Consequently, operating profit
grew by 31.7% yoy (down 2.0 qoq) to Rs980cr. Interest costs grew by 35.0% yoy FII / NRIs / OCBs 15.2
and 23.3% qoq to Rs388cr because of increased leverage due to the DLF-DAL Indian Public / Others 4.2
integration. Further, depreciation cost increased by 58.4% qoq and 104.3% yoy to
Rs150cr due to higher fixed assets. Consequently, PAT stood at Rs411cr, up by
3.8% yoy (down by 3.6% qoq), marginally below our estimates (Rs445cr). Abs. (%) 3m 1yr 3yr

Outlook and valuation: We have downgraded our earnings estimate by 16.0% Sensex 2.8 18.6 18.1
and 11.9% in FY2011E and FY2012E, respectively, to factor in weak volumes in DLF 0.0 (22.3) (48.5)
the residential segment. In our view, there is a limited upside to our launch
estimates, considering the delay in approvals and the steep price rise in the recent
months. The stock is trading at a 4.0% premium to our one-year forward NAV of
Rs298. Hence, we recommend Neutral on the stock.
Key financials (Consolidated)
Y/E March (Rs cr) FY2009 FY2010 FY2011E FY2012E
Net sales 10,035 7,421 9,327 13,563
% chg (30.5) (26.1) 25.7 45.4
Net profit 4,470 1,730 1,964 3,566
% chg (42.8) (61.3) 13.5 81.5
EBITDA (%) 55.8 47.2 46.1 49.0
EPS (Rs) 26.2 10.2 11.6 21.0 `

P/E (x) 11.8 30.3 26.7 14.7 Param Desai
P/BV (x) 2.2 1.7 1.6 1.5 022 – 4040 3800 Ext: 310
paramv.desai@angeltrade.com
RoE (%) 20.4 6.3 6.2 10.5
RoCE (%) 14.6 6.7 6.9 10.6
Mihir Salot
EV/Sales (x) 6.7 9.9 7.8 5.3
022 – 4040 3800 Ext: 307
EV/EBITDA (x) 12.1 20.9 16.9 10.9 mihirr.salot@angeltrade.com
Source: Company, Angel Research

Please refer to important disclosures at the end of this report 1

DLF | 1QFY2011 Result Update

Exhibit 1: Quarterly performance
Y/E March (Rs cr) 1QFY11 4QFY10 % chg (qoq) 1QFY10 % chg (yoy) FY10 FY09 % chg
Net Sales 2029 1,994 1.7 1,650 23.0 7,421 10,035 (26.1)
Operating profit 980 1,000 (2.0) 744 31.7 3,501 5,597 (37.4)
OPM (%) 48.3 50.1 (184bp) 45.1 320bp 47.2 55.8 (859bp)
Interest expenses (388) (315) 23.3 (287) 35.0 (1,108) (555) 99.6
Depreciation (150) (95) 58.4 (73) 104.3 (325) (239) 36.0
Other Income 132 152 (13.0) 96 37.4 433 396 9.4
PBT 574 742 (22.7) 479 19.7 2,502 5,200 (51.9)
Provision for Taxation (168) (236) (28.9) (99) 69.2 (696) (681) 2.1
PAT before Extra-ordinary item 406 506 (19.8) 380 6.8 1,807 4,518 (60.0)
Exceptional 3 (87) 0 (87) 0
Minority/Profit in associates 2 7 (73.2) 16 (87.4) 10 (49) (121.3)
PAT after Extra-ordinary item & MI 411.0 426.4 (3.6) 396.0 3.8 1,730 4,470 (61.3)
EPS (Rs) 2.4 2.5 (3.6) 2.3 3.8 10.2 26.2 (61.1)

Subdued new launches; improvement in leasing

DLF’s development volumes stood at 1.9mn sq ft (down 28.8% yoy and 47.8%
qoq) because of subdued new launches. Management has cited delay in getting
approvals has slowed down the process of new launches. In the last quarter,
management had guided of 15mn–18mn sq ft of development volumes in
FY2011E, which will be a challenging task. The launch of NTC mill (~3mn sq ft)
will be a key to bring down target net debt of 0.4–0.5 by FY2011E. We were
positively surprised by leasing volumes, which came in at 1.17mn sq ft driven by
improvement in office leasing, which was more than the leases booked in FY2010.
Management has targeted office leasing of 3mn–4mn sq ft in FY2011E.

Exhibit 2: Sharp fall in residential volumes Exhibit 3: Revival in office leasing
4.0 3.6 1.2
1.0
3.5 3.2 3.1 1.0
3.0 2.7 0.8 0.7
2.5
(mn sq. ft.)

0.6
1.9 0.4
(mn sq. ft.)

2.0 0.4
1.5 0.2
1.0 0.0
0.5 -0.2 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11
0.0 -0.4
1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 -0.5 -0.4
-0.6

Source: Company, Angel Research Source: Company, Angel Research

July 29 2010 2


Update on execution and non-core assets

As of 1QFY2011, DLF has 55mn sq ft of projects under execution (compared
to56mn sq ft as of 4QFY2010), as it handed over 1.37mn sq ft of office and
commercial complex. DLF intends to hand over around 30mn sq ft by FY2013 and
add 3mn–4mn sq ft in FY2011E. The company has targeted divestment proceeds
of ~Rs2,500cr over the next 15–18months, which will depend on the hiving-off
Aman resorts, Dwarka project and exit from TIDCO. During 1QFY2011, the
company received Rs294cr by hiving-off some of its non-core assets.

Exhibit 4: Projects under construction
60
56 55
55
51
49
50
(mn sq. ft.)

45 42
40

35

30

25
1QFY10 2QFY10 3QFY10 4QFY10 1QFY11


Exhibit 5: Quarterly revenue trend Exhibit 6: Quarterly EBITDA trend
480 200 1,200 60
168.1 50.1
460 150 1,000 52.2 48.3 50
100 45.1
440 800 41.6 40
(Rs cr)

50

(%)
(Rs cr)

420
(%)

600 30
0
400 400 20
(50)
(67.0)
380 (78.8) (90.8) 200 10
(77.3) (100)
360 (150) 0 0
1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11
PAT yoy change (RHS) EBITDA (LHS) EBITDA margin (RHS)

Source: Company, Angel Research Source: Company, Angel Research

Exhibit 7: Quarterly profitability trend
2,100
85
1,800 77.7
65
1,500 45
1,200 23.0 25
(Rs cr)

(%)

900 5
(15)
600
(34.2) (35)
300 (55)
(56.7) (53.2)
0 (75)
1QFY10 2QFY10 3QFY10 4QFY10 1QFY11
Revenue (LHS) yoy change (RHS)


July 29 2010 3


Investment Arguments

Higher leverage remains a concern

The DAL/Caraf merger and purchase of CCPS, which were earlier issued by DAL
to SC Asia (Rs3,085cr), has increased the net debt level to 0.81x from the current
level of 0.68x. This has resulted in net debt of Rs22,077cr by the end of
1QFY2011. Further, promoters have Rs1,600cr of CCPS in the merged entity,
which carries a dividend rate of 9% resulting in annual cash outflow of Rs140cr.
These CCPS are convertible post April 2011. Consequently, interest payments as a
percentage of EBITDA remain on the higher side (65%). Debt repayments due in
FY2011E are Rs2,200cr. DLF is targeting to reduce its net debt/equity to 0.4–0.5x
by end-FY2011E. The reduction in the gearing level will depend on hiving off non-
core assets, successful new launches, like the Mumbai NTC mill, and a recovery in
the commercial leasing segment.

Improvement in leasing and new launches—Key for stock
performance

DLF’s non-residential segment accounts for 55% of our GNAV. During FY2010,
DLF leased only 0.93mn sq ft of commercial and retail space. However, the
company has witnessed improvement in leasing in 1QFY2011, where it could
lease out 1.2mn sq ft. DLF expects leasing activity to pick up in FY2011 and
expects to list DAL as a business trust/REIT in CY2011, which can be value
accretive for DLF’s shareholders at the lower cap rate. However, this will depend
on recovery in the commercial leasing segment. After the merger of DLF and
DAL/Caraf, the company has 20mn sq ft of rent-yielding assets, which will
generate Rs1,500cr–1,600cr of rental income in FY2011E. Further, there has been
delay in new launches on account of delay in getting new approvals. In
1QFY2011, the company could launch only one project (Chennai) of 0.23mn sq
ft. We believe management’s guidance of 15mn–18mn sq ft of development
volumes in FY2011E will be a challenging task.

Fairly valued

DLF has a challenging task in FY2011E to bring down its gearing levels for getting
fast approvals in order to have successful new launches and for monetizing its
noncore assets at a reasonable value. We estimate DLF to sell 15.5mn sq ft in
FY2011E, of which 11mn sq ft is from the residential segment. In our view, there is
a limited upside to our launch estimates, considering the steep price rise in the
recent months. We have assumed a 5% reduction in commercial and retail prices
but a 5% rise in residential prices from the current level in FY2011E.

July 29 2010 4


Exhibit 8: Change in estimates
Earlier Estimates Revised Estimates Change (%)
(Rs cr) FY11E FY12E FY11E FY12E FY11E FY12E
Revenue 9,668 14,413 9,327 13,563 (3.5) (5.9)
EBITDA 4,509 7,264 4,301 6,639 (4.6) (8.6)
PAT 2,338 4,049 1,964 3,566 (16.0) (11.9)

We have downgraded our earnings estimate by 16.0% and 11.9% in FY2011E
and FY2012E, respectively, to factor in weak volumes in the residential segment.
DLF has underperformed the Sensex over the last six months on concerns of a
weak operating cash flow and increasing gearing levels. The stock is trading at a
4.0% premium to our one-year forward NAV of Rs298. Hence, we recommend
Neutral on the stock.

Exhibit 9: Key assumptions
Particulars FY2010 FY2011E FY2012E
Volume (mn sq. ft.)
Sales 12.6 14.0 19.6
Leasing 0.9 3.2 4.8
Pricing (% change)
Residential 5.0 5.0
Commercial (5.0) 5.0
Retail (5.0) 5.0
Discount rate 14%
Cap Rate 11%
Source: Angel research

Exhibit 10: Angel forecast vs. consensus
Angel forecast Bloomberg consensus Variation (%)
FY11E FY12E FY11E FY12E FY11E FY12E
Top line (Rs cr) 9,327 13,563 9,376 11,945 (0.5) 13.5
EPS (Rs) 11.6 21.0 14.8 21.0 (21.9) 0.1
Source: Bloomberg, Angel Research

Exhibit 11: Peer valuation
Company Reco Mcap CMP TP Upside P/E (x) P/B (x) NAV Prem/Disc. EV/EBITDA (x) RoE (%) CAGR #
(Rs cr) (Rs) (Rs) (%) FY11E FY12E FY11E FY12E to NAV FY11E FY12E FY11E FY12E Sales PAT
Anant Raj Buy 3,423 116 178 53.4 13.2 8.9 0.9 0.8 210 (44.8) 10.1 6.9 7.3 9.9 56.6 36.2
DLF Neutral 52,670 309 - - 26.7 14.7 1.6 1.5 298 4.0 16.9 10.9 6.2 10.5 41.4 53.1
HDIL Buy 9,116 264 302 14.6 13.8 7.6 1.2 1.1 402 (34.4) 13.8 7.1 9.5 15.2 53.4 64.1

July 29 2010 5


Profit & loss statement (Consolidated)
Y/E March (Rs cr) FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E
Gross sales 2,637 14,437 10,035 7,421 9,327 13,563
Less: Excise duty - - - - - -
Net sales 2,637 14,437 10,035 7,421 9,327 13,563
Other operating income - - - - - -
Total operating income 2,637 14,437 10,035 7,421 9,327 13,563
% chg 226.4 447.4 (30.5) (26.1) 25.7 45.4
Total expenditure 1,120 4,722 4,438 3,920 5,026 6,923
Construction cost 632 3,785 2,859 2,074 3,206 4,399
Other exp. 396 638 1,125 1,376 1,310 1,860
Personnel 92 300 454 469 510 665
EBITDA 1,518 9,715 5,597 3,501 4,301 6,639
% chg 219.0 540.2 (42.4) (37.4) 22.8 54.4
(% of Net Sales) 57.5 67.3 55.8 47.2 46.1 49.0
Dep. & amortisation 57 90 239 325 555 629
EBIT 1,460 9,625 5,358 3,177 3,746 6,011
% chg 232.2 559.0 (44.3) (40.7) 17.9 60.5
(% of Net sales) 55.4 66.7 53.4 42.8 40.2 44.3
Interest & other charges 308 310 555 1,108 1,490 1,514
Other income 1,416 246 396 433 480 456
(% of PBT) 55.1 2.6 7.6 17.3 17.5 9.2
Recurring PBT 2,569 9,561 5,200 2,502 2,735 4,952
% chg 614.5 272.2 (45.6) (51.9) 9.3 81.1
Extraordinary exp./(inc.) - - - - - -
PBT (reported) 2,569 9,561 5,200 2,502 2,735 4,952
Tax 606 1,739 681 696 766 1,387
(% of PBT) 23.6 18.2 13.1 27.8 28.0 28.0
PAT (reported) 1,963 7,822 4,518 1,807 1,969 3,566
Add: Share of asso.
(1.3) 26.4 (21.1) 0.5 10.0 15.0
Earnings
Less: Minority interest (MI) (1.1) (35.5) (27.5) 9.8 (25.0) (25.0)
Prior period items - (1.2) - (87.0) 10.0 10.0
PAT after MI (reported) 1,961 7,812 4,470 1,730 1,964 3,566
ADJ. PAT 1,963 7,822 4,518 1,807 1,969 3,566
% chg 922.7 298.5 (42.8) (61.3) 13.5 81.5
(% of Net sales) 74.3 54.1 44.5 23.3 21.1 26.3
Basic EPS (Rs) 12.8 45.8 26.2 10.2 11.6 21.0
Fully Diluted EPS (Rs) 11.6 46.0 26.3 10.2 11.6 21.0
% chg 26.3 298.5 (42.8) (61.3) 13.5 81.5

July 29 2010 6


Balance sheet (Consolidated)
Sources of funds
Equity share capital 1,256 1,291 1,735 6,259 6,259 6,259
Preference capital - - - - - -
Reserves & surplus 2,712 18,398 22,419 24,513 26,090 29,269
Shareholders’ funds 3,967 19,688 24,154 30,772 32,349 35,528
Minority interest 9 389 634 629 654 679
Total Loans 9,933 12,277 16,320 21,677 21,677 21,677
Deferred tax liability 19 36 (41) 262 262 262
Total liabilities 13,928 32,391 41,067 53,340 54,942 58,146
Application of funds
Gross block 1,779 5,163 8,487 17,874 19,133 22,780
Less: Acc. dep. 241 343 574 1,326 1,881 2,510
Net Block 1,538 4,819 7,913 16,548 17,252 20,271
Capital WIP 2,650 5,184 5,688 11,182 12,859 14,145
Goodwill 894 2,093 2,265 1,267 1,267 1,267
Investments 211 910 1,402 5,520 5,520 5,520
Current assets 12,879 26,600 31,623 28,074 27,504 27,986
Cash 416 2,142 1,196 913 1,603 1,699
Loans & adv. 5,237 7,369 9,712 8,600 6,880 6,192
Other 7,227 17,089 20,715 18,561 19,021 20,095
Current liab. & prov. 4,243 7,216 7,824 9,251 9,460 11,043
Net Current Assets 8,637 19,384 23,799 18,823 18,044 16,943
Mis. Exp. not w/off - - - - - -
Total Assets 13,928 32,391 41,067 53,340 54,942 58,146

July 29 2010 7


Cash flow statement (Consolidated)
Profit before tax 2,540 9,559 5,200 2,486 2,735 4,952
Depreciation 58 90 239 326 555 629
Change in Working Capital (7,481) (10,581) (3,862) 5,779 1,469 1,197
Less: Other Adjustments (1,077) 157 348 921 1,490 1,514
Direct taxes paid (603) (1,821) (1,112) (908) (766) (1,387)
Cash Flow from Operations (6,563) (2,597) 813 8,604 5,484 6,906
(Inc)./Dec. in Fixed Assets (1,096) (4,768) (3,822) (14,401) (2,936) (4,933)
(Inc.)/Dec in Investments 1,243 (1,442) (444) (2,073) - -
Interest received 89 195 103 193 - -
Other income - - - - 20 25
Cash Flow from Investing 236 (6,014) (4,163) (16,281) (2,916) (4,908)
Issue of Equity 950 9,196 304 4,524 - -
Inc./(Dec.) in loans 5,801 2,318 4,113 5,405 - -
Dividend Paid (Incl. Tax) (2) (798) (372) (385) (387) (387)
Interest Paid (290) (279) (1,667) (2,151) (1,490) (1,514)
Cash Flow from Financing 6,459 10,437 2,378 7,393 (1,877) (1,901)
Inc./(Dec.) in Cash 132 1,826 (972) (284) 690 96
Opening Cash balances 283 316 2,168 1,196 913 1,603
Closing Cash balances 416 2,142 1,196 913 1,603 1,699

July 29 2010 8


Key ratios
Y/E March FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E
Valuation Ratio (x)
P/E (on FDEPS) 24.2 6.8 11.8 30.4 26.8 14.8
P/CEPS 23.5 6.7 11.2 25.6 20.9 12.6
P/BV 13.3 2.7 2.2 1.7 1.6 1.5
Dividend yield (%) - 1.3 0.6 0.6 0.6 0.6
EV/Sales 23.6 4.4 6.8 9.9 7.8 5.4
EV/EBITDA 41.0 6.5 12.1 21.0 16.9 10.9
EV / Total Assets 4.5 1.9 1.7 1.4 1.3 1.2
Per Share Data (Rs)
EPS (Basic) 12.8 45.8 26.2 10.2 11.6 21.0
EPS (fully diluted) 11.6 46.0 26.3 10.2 11.6 21.0
Cash EPS 13.2 46.4 27.6 12.1 14.8 24.7
DPS - 4.0 2.0 2.0 2.0 2.0
Book Value 23.4 116.0 142.3 181.3 190.6 209.3
DuPont Analysis
EBIT margin 55.4 66.7 53.4 42.8 40.2 44.3
Tax retention ratio 0.8 0.8 0.9 0.7 0.7 0.7
Asset turnover (x) 0.3 0.7 0.3 0.2 0.2 0.2
ROIC (Post-tax) 12.1 36.0 13.3 5.0 5.1 7.9
Cost of Debt (Post Tax) 6.7 2.3 3.4 4.2 5.0 5.0
Leverage (x) 1.3 0.8 0.6 0.7 0.6 0.6
Operating ROE 19.2 64.0 19.0 5.5 5.2 9.6
Returns (%)
ROCE (Pre-tax) 19.6 41.6 14.6 6.7 6.9 10.6
Angel ROIC (Pre-tax) 21.7 58.4 19.5 8.8 9.5 15.0
ROE 79.5 66.0 20.4 6.3 6.2 10.5
Turnover ratios (x)
Asset t/o (Gross Block) 1.7 4.2 1.5 0.6 0.5 0.6
Inventory/sales (days) 508 192 371 574 524 399
Receivables (days) 151 115 178 94 62 49
Payables (days) 791 294 346 447 405 341
Wkg cap (ex-cash) (days) 674 322 725 996 672 426
Solvency ratios (x)
Net debt to equity 2.4 0.5 0.6 0.7 0.6 0.6
Net debt to EBITDA 6.3 1.0 2.7 5.9 4.7 3.0
Int. coverage (EBIT/Int) 4.7 31.0 9.7 2.9 2.5 4.0

July 29 2010 9


Research Team Tel: 022 - 4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make
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risks of such an investment.

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investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this
document are those of the analyst, and the company may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and
trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's
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Disclosure of Interest Statement DLF
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
3. Angel and its Group companies' Directors ownership of the stock No
4. Broking relationship with company covered No

Note: We have not considered any Exposure below Rs 1 lakh for Angel, its Group companies and Directors.

Ratings (Returns) : Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)
Reduce (-5% to 15%) Sell (< -15%)

July 29 2010 10

DLF

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