1QFY2012 Result Update | Real Estate

August 5, 2011

DLF
Performance Highlights
Y/E March (` cr) Net sales EBITDA OPM margin (%) PAT 1QFY12 2,445.8 1,111.0 45.4 358.4 4QFY11 2,683.1 666.2 24.8 344.5 % chg (qoq) (8.8) 66.8 2,059bp 4.0 1QFY11 2,029.0 980.0 48.3 411.0 % chg (yoy) 20.5 13.4 (288)bp (12.8)

NEUTRAL
CMP Target Price
Investment Period
Stock Info Sector Market Cap (`cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Real Estate 35,692 1.4 397 / 187 1,047,325 2 17,306 5,211 DLF.BO DLFU@IN

`210 -

Source: Company, Angel Research

DLFs 1QFY2012 results were below our expectations. The companys revenue increased by 20.5% yoy to `2,446cr (`2,029cr). OPM came in at 45.4%, down 288bp yoy, marginally below our expectation of 45.8%. PAT declined by 12.8% yoy to `358cr (`411cr), well below our expectation of `488cr. Earnings below expectation: DLF reported 20.5% yoy growth in its revenue to `2,446cr. Leasing volume dipped during the quarter to 0.73mn sq. ft. compared to 1.4mn sq. ft. in 4QFY2011 and 0.98 mn sq. ft. in 1QFY2011. The company booked 2.2mn sq. ft. compared to 3.8mn sq. ft. in 4QFY2011 and 1.9mn sq. ft. in 1QFY2011. OPM came in at 45.4%, down 288bp yoy, on account of cost escalation and inability to pass on the same. However, operating profit grew by 13.4% yoy to `1,111cr because of higher revenue. Interest cost grew by 27.9% yoy (up 8.9% qoq) to `496cr due to increased leverage and lower capitalisation of interest on the back of project completion. Consequently, reported PAT came in at `358cr, down by 12.8% yoy (up by 4.0% qoq), below our estimates (`488cr). The company monetised `165cr of non-core assets during the quarter. Outlook and valuation: DLF is optimistic on selling ~12mn sq. ft. in FY2012.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 78.6 1.9 15.1 4.4

Abs.(%) Sensex DLF

3m (5.0)

1yr (4.8)

3yr 15.7

The company plans to change its mix by selling more plotted land during the year. However, there is a risk to the companys guidance, considering the delay in approvals and slowdown in the recent months on the back of interest rate hike. We expect DLF to book ~12mn sq. ft. in FY2012 and expect flat growth in volumes in FY2013E, considering the weaker macro environment. Further, DLF lacks near-term triggers, given the kind of muted visibility on debt reduction, though the company plans to divest `6,000cr7,000cr in 23 years to reduce debt. Hence, we recommend Neutral on the stock. Key Financials (Consolidated)
Y/E March (` cr) Net Sales % chg Net Profit % chg EBITDA (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

(2.3) (32.3) (62.0)

FY2010 7,423 (26.0) 1,720 (61.5) 47.3 10.1 20.7 1.5 7.3 6.8 7.6 16.1

FY2011E 9,561 28.8 1,640 (4.7) 39.3 9.7 21.8 1.5 6.7 6.0 6.1 15.5

FY2012E 10,466 9.5 1,659 1.2 43.6 9.8 21.5 1.4 6.7 7.5 5.7 13.0

FY2013E 11,702 11.8 2,016 21.5 44.5 11.9 17.7 1.4 7.8 8.2 5.2 11.7

Sharan Lillaney
+91 22 3935 7800 Ext: 6811 Sharanb.lillaney@angeltrade.com

Please refer to important disclosures at the end of this report

DLF | 1QFY2012 Result Update

Exhibit 1: Quarterly performance

Y/E March (Rs cr) Net Sales Operating profit OPM (%) Interest expenses Depreciation Other Income PBT Provision for Taxation Tax rate (%) PAT before Extra-ordinary item Exceptional Minority/Profit in associates PAT after Extra-ordinary item & MI PAT Margin EPS (Rs)
Source: Company, Angel Research

1QFY12 2,446 1,111 45.4 496 170 57 502 128 25.5 374 (3) (12) 358 14.7 2.1

4QFY11 2,683 666 24.8 456 166 187 231 16 6.7 216 94 35 345 12.8 2.0

% chg (qoq) (8.8) 66.8 2,059bp 8.9 2.7 (69.2) 116.8 722.1 279.2 73.2

1QFY11 2,029 980 48.3 388 150 132 574 168 29.3 406 3 2

% chg (yoy) 20.5 13.4 (288)bp 27.9 13.5 (56.5) (12.6) (23.9) (7.9)

FY2011 9,561 3,753 39.3 1,706 631 584 2,000 459 23.0 1,541 97 2

FY2010 7,423 3,512 47.3 1,110 325 428 2,505 702 28.0 1,802 (94) 12 1,720 23.2 10.1

% chg 28.8 6.9 (806)bp 53.7 94.1 36.4 (20.1) (34.6) (14.5)

4.0 181bp 4.0

411 20.3 2.4

(12.8) (560)bp (12.8)

1,640 17.1 9.7

(4.7) (602)bp (4.7)

Key highlights of the quarter

Sales of 2.2mn sq. ft. in 1QFY2012 compared to 1.9mn sq. ft. in 1QFY2011 and 3.4mn sq. ft. in 4QFY2011 Sales of 2.2mn sq. ft. consisted of 1.1mn sq. ft. of the newly launched Sector 91/92, Gurgaon and 1.1mn sq. ft. from the existing stock sold 1.1mn sq. ft. launched comprised plots sized between 300500 sq. yd., with an average price of `40,000/sq. yd. Leased 0.73mn sq. ft. compared to 0.98mn sq. ft. in 1QFY2011 and 1.4mn sq. ft. in 4QFY2011 Average leasing rate for office building up to `47/sq. ft. vs. `43/sq. ft. in 4QFY2011 Average leasing rate for retail building up to `236/sq. ft. vs. `144/sq. ft. in 4QFY2011 Monetised `165cr of noncore assets 1.9mn sq. ft. handed over during the quarter

August 5, 2011

DLF | 1QFY2012 Result Update

Revenue up by 20.5% yoy

DLFs revenue grew by 20.5% yoy to `2,446cr in 1QFY2011. The company booked 2.2mn sq. ft., which consisted of 1.1mn sq. ft. of the newly launched Sector 91/92, Gurgaon and 1.1mn sq. ft. from the existing stock. The company leased out 0.73mn sq. ft., down 47.8% qoq. However, average leasing rates increased on a qoq basis. Office building rates increased to `47/sq. ft. from `43/sq. ft. in 4QFY2011. Retail building rates increased to `236/sq. ft. compared to `144/sq. ft. in 4QFY2011.

Exhibit 2: Revenue continues its strong growth momentum

3,000 85 2,500 2,000 35.3 23.0 22.4 34.5 20.5 65 45 25 5

(` cr)

1,000 500 0 1QFY11 2QFY11 3QFY11 Revenue (LHS) 4QFY11 1QFY12 yoy change (RHS)

(15) (35) (55) (75)

Source: Company, Angel Research

OPM down by 288bp to 45.4%

Operating profit increased by 13.4% to `1,111cr on the back of higher revenue during the quarter. OPM was down by 288bp yoy to 45.4% (48.3%), largely on the back of cost escalation and inability to pass on the same. OPM was marginally down compared to our estimate of 45.8%.

Exhibit 3: Margin pressure continues

1,400 1,200 1,000 48.3 39.2 24.8 47.5 45.4 60 50 40

(` cr)

800 600 400 200 0 1QFY11

20 10 0 2QFY11 3QFY11 4QFY11 1QFY12 EBITDA (LHS) EBITDA margin (RHS)

Source: Company, Angel Research

August 5, 2011

(%)

30

(%)

1,500

DLF | 1QFY2012 Result Update

PAT well below expectation

DLFs, PAT declined by 12.8% yoy to `358cr, well below our expectation of `488cr. Higher interest, depreciation and lower other income were the main reasons behind the dip in PAT. Interest increased by 27.9% yoy and 8.9% qoq to `496cr on the back of higher leverage on a yoy basis and lower capitalisation of interest because of project completion. Depreciation increased by 13.5% yoy to `170cr. Other income declined by 56.5% yoy to `57cr (`132cr).

Exhibit 4: PAT Trend

500 450 400 350 300 3.8 1.8 (0.4) 5 0 (5) (10) (12.8) (15) (19.2) (20) (25) 1QFY11 2QFY11 3QFY11 4QFY11 PAT yoy change (RHS) 1QFY12

(` cr)

250 200 150 100 50 0

Source: Company, Angel Research

August 5, 2011

(%)

DLF | 1QFY2012 Result Update

Exhibit 5: Residential volumes subdued

4.0 3.5 3.0 2.5 1.9 2.1 3.8

Exhibit 6: Leasing volumes down

1.8 1.6 1.4 1.7 1.7 1.4

(mn sq. ft.)

(mn sq. ft.)

2.5 2.0 1.5 1.0 0.5 0.0 1QFY11

2.2

1.2 1.0 0.8 0.6 0.4 0.2 0.0

1.0 0.7

2QFY11

3QFY11

4QFY11

1QFY12

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

Source: Company, Angel Research

Source: Company, Angel Research

Exhibit 7: Projects under construction

60 55 50
(mn sq. ft.)

56

55

57

56 53 52

45 40 35 30 25 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12

Source: Company, Angel Research

August 5, 2011

DLF | 1QFY2012 Result Update

Investment arguments Higher leverage remains a concern

The DAL/Caraf merger, subdued new launches and purchase of Compulsorily Convertible Preference shares (CCPS), which were earlier issued by DAL to SC Asia, have increased the companys debt-to-equity level to 0.9x. By the end of 1QFY2012, the companys net debt stands at `23,863cr. Further, promoters have `1,600cr of CCPS in the merged entity, which carries a dividend rate of 9%, resulting in annual cash outflow of `140cr. These CCPS are convertible post April 2011. Consequently, interest payments as a percentage of EBITDA remain on the higher side (45%). DLF is targeting to reduce its net debt/equity to 0.6x by the end of FY2012E. Reduction in the gearing level will depend on hiving off non-core assets and successful new launches.

Outlook and valuation

DLF has a challenging task in FY2012E to bring down its gearing levels for getting fast approvals to have successful new launches and for monetising its noncore assets at a reasonable value. We estimate DLF to sell ~12mn sq. ft. of residential volumes in FY2012E and expect flat growth in FY2013E. 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 flat growth in residential prices, from the current level, in FY2012E. Further, the company lacks near-term triggers, given the kind of muted visibility on debt reduction and new launches. Hence, we recommend Neutral on the stock.

August 5, 2011

DLF | 1QFY2012 Result Update

Profit & Loss Statement (Consolidated)

Y/E March (` cr) Gross sales Less: Excise duty Net Sales Other operating income Total operating income % chg Total Expenditure Construction cost incl land costs Other construction expenditure Personnel EBITDA % chg (% of Net Sales) Depreciation& Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of associate earnings Less: Minority interest (MI) Prior period items PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY2009 FY2010E FY2011E FY2012E FY2013E 10,035 10,035 10,035 (30.5) 4,445 2,769 1,223 454 5,590 (42.5) 55.7 239 5,351 (44.4) 53.3 555 396 7.6 5,192 (45.7) 5,192 675 13.0 4,517 (21.1) (27.5) 4,468 4,517 (42.8) 44.5 26.2 26.3 (42.8) 7,423 7,423 7,423 (26.0) 3,911 2,072 1,373 467 3,512 (37.2) 47.3 325 3,187 (40.4) 42.9 1,110 428 17.1 2,505 (51.8) 2,505 702 28.0 1,802 0.8 10.8 (94.2) 1,720 1,802 (61.5) 23.2 10.1 10.1 (61.5) 9,561 9,561 9,561 28.8 5,808 3,523 1,713 572 3,753 6.9 39.3 631 3,122 (2.0) 32.7 1,706 584 29.2 2,000 (20.1) 2,000 459 23.0 1,541 8.8 (7.2) 97.2 1,640 1,541 (4.7) 17.1 9.7 9.7 (4.7) 10,466 10,466 10,466 9.5 5,904 3,502 1,757 646 4,562 21.6 43.6 708 3,854 23.5 36.8 2,020 262 12.5 2,095 4.8 2,095 524 25.0 1,571 10.0 (20.0) 97.2 1,659 1,571 1.2 15.8 9.8 9.8 1.2 11,702 11,702 11,702 11.8 6,490 4,026 1,790 674 5,212 14.2 44.5 788 4,424 14.8 37.8 2,124 265 10.3 2,565 22.4 2,565 641 25.0 1,924 15.0 (20.0) 97.2 2,016 1,924 21.5 17.2 11.9 11.9 21.5

August 5, 2011

DLF | 1QFY2012 Result Update

Balance Sheet (Consolidated)

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Minority Interest Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liab. & prov. Net Current Assets Total Assets 8,487 574 7,912 5,688 2,265 1,402 31,622 1,196 9,712 20,715 7,824 23,798 41,066 17,884 1,326 16,558 11,129 1,268 5,505 27,306 928 7,593 18,784 8,777 18,529 52,989 19,828 1,956 17,872 10,312 1,384 996 33,272 1,346 7,271 24,654 13,101 20,170 50,734 22,519 2,664 19,855 11,343 1,384 996 32,271 1,201 6,544 24,526 13,307 18,964 52,542 24,612 3,452 21,160 12,478 1,384 996 32,456 1,213 5,890 25,353 13,460 18,996 55,013 339 1,396 22,418 22,758 634 16,320 (41) 41,066 339 5,920 24,173 24,513 628 21,677 251 52,989 340 1,810 24,182 24,522 575 23,990 (163) 50,734 340 1,810 24,970 25,310 595 24,990 (163) 52,542 340 1,810 25,921 26,261 615 26,490 (163) 55,013 FY2009 FY2010E FY2011E FY2012E FY2013E

August 5, 2011

DLF | 1QFY2012 Result Update

Cash Flow Statement (Consolidated)

Y/E March Profit before tax Depreciation Change in Working Capital Less: Other Adjustments Direct taxes paid Cash Flow from Operations (Inc)./Dec. in Fixed Assets (Inc.)/Dec in Investments Interest received Others Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Interest Paid Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY2009 5,192 239 (4,521) 376 (1,112) 174 (3,249) (444) 102 (3,590) 305 4,111 (372) (1,601) 2,443 (972) 2,168 1,196 FY2010E 2,505 325 5,743 911 (856) 8,628 (13,325) (3,109) 127 (16,306) 4,523 5,381 (383) (2,103) 7,417 (261) 1,189 928 FY2011E 2,000 631 (960) 1,706 (459) 2,917 (1,126) 4,509 (1,816) 1,567 (4,110) 2,314 (565) (1,706) (4,066) 418 928 1,346 FY2012E 2,095 708 639 2,020 (524) 4,939 (3,722) 107 (3,615) 1,000 (449) (2,020) (1,470) (146) 1,346 1,201 FY2013E 2,565 788 (213) 2,124 (641) 4,623 (3,228) 112 (3,116) 1,500 (871) (2,124) (1,495) 13 1,201 1,213

August 5, 2011

DLF | 1QFY2012 Result Update

Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (GB) Inventory / Sales (days) Receivables (days) Payables (days) Wkg. capital (ex-cash, days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT/Int) 0.7 2.7 9.6 0.8 5.9 2.9 0.9 6.0 1.8 0.9 5.2 1.9 1.0 4.8 2.1 1.5 371 178 345 725 0.6 576 93 410 988 0.5 525 64 436 695 0.5 540 63 564 638 0.5 522 62 506 554 14.6 19.5 21.5 6.8 8.9 7.3 6.0 8.1 6.7 7.5 10.1 6.7 8.2 11.3 7.8 53.3 0.9 0.3 13.3 3.4 0.6 19.3 42.9 0.7 0.2 5.0 4.2 0.8 5.6 32.7 0.8 0.2 4.7 5.8 0.9 3.8 36.8 0.7 0.2 5.7 6.2 0.9 5.3 37.8 0.7 0.2 6.3 6.2 1.0 6.4 26.2 26.3 27.6 2.0 134.1 10.1 10.1 12.0 2.1 144.4 9.7 9.7 13.4 4.2 144.5 9.8 9.8 13.9 4.5 149.1 11.9 11.9 16.5 5.5 154.7 8.0 7.6 1.6 1.0 5.1 9.1 1.2 20.7 17.5 1.5 1.0 7.6 16.1 1.1 21.8 15.7 1.5 2.0 6.1 15.5 1.1 21.5 15.1 1.4 2.1 5.7 13.0 1.1 17.7 12.7 1.4 2.6 5.2 11.7 1.1 FY2009 FY2010E FY2011E FY2012E FY2013E

August 5, 2011

10

DLF | 1QFY2012 Result Update

Research Team Tel: 022 - 4040 3800 DISCLAIMER

E-mail: research@angeltrade.com

Website: www.angeltrade.com

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 such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make 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 fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

DLF No No No No

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

Ratings (Returns) :

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

August 5, 2011

11