DLF
DLF Limited is entering the capital market on 11th June, 2007 with a public issue of 17.50 crore equity shares of Rs.2 each in the band of Rs.500 to Rs.550 per share. The issue size would be Rs.8750 crores to Rs.9625 crores at both end of the price band.
The present equity of the company is at Rs.305.97 crores which would rise to Rs.340.97 crores thus diluting about 10.27% stake. Post issue, promoter's stake would be placed at 87.43%.
The company is the largest real estate development company in India with land reserves of 10255 acres with 51% land reserves in NCR region, 23% in Kolkata, 5% in Goa, 5% in Maharashtra, 3% in Indore, 4% in Punjab, 2% in Bangalore and the balance in various other States.
As of 30th April, 2007, the company has total of 44 millions sq. ft. under construction of which 7 millions sq.ft. is residential, 27 million sq. ft commercial and 10 millions sq. ft. retail. The total land reserves of 10255 acre would result in 574 millions sq. ft. of developable area. The company has further entered into arrangements for the acquisition of land or development rights for 554 acres of land.
The company had total revenue of Rs.4034.10 crores for FY07 and PBT of Rs.2549.50 crores. After providing for tax of Rs.608.20 crores PAT is placed at Rs.1941.30 crores. However, these financials are inflated due to proceeds coming in from sale of commercial property by the company to DLF Assets Pvt. Ltd. a group company. Sale of Rs.2207 crore which is 55% of the total sales has resulted in higher PBT of Rs.1564 crores.
The average tax liability of the company for FY07 has been about 24%. This means, the PBT of Rs.1564 crores earned on the sale of properties to DLF Assets has attracted tax liability of Rs.375 crores. Isn't this unfair on the part of the company to have first inflated its financials for FY07 and that too at the cost of a liquidity loss of Rs.375 crores?
As such, the company had negative cash flows in FY07 (Rs.5831 crores) and FY06 (Rs.950 crores) from operating activities and had a high debt equity ratio of 2.5:1 as on 31.03.2007.The total borrowing of the company is also very high at Rs.9932 crores as at 31.03.2007.The standalone NAV at 31.03.2007 is Rs. 6.95 per share on fully diluted equity.
There have been some corporate governance issues with the minority shareholders in the past, due to which the issue had got delayed. Also the trackrecord of the promoters in running manufacturing companies has not exactly been trailblazing. DLF Cement, after falling sick was sold to Gujarat Ambuja Cement Limited.
Another comparable company in the same sector, Unitech, recently announced its FY07 results with total income at Rs.3388 crores with PAT of Rs.1305.50 crores (on consolidated basis) resulting in an EPS of Rs.16.09. The NAV on 31.03.2007 on consolidated basis was at Rs.25.20 while on the standalone basis it was at Rs.14.90 per share. Taking current market price of Rs.580 per share, market cap of the company works out at Rs.47000 crores.
At the upper band of Rs.550 per share, on fully diluted equity of Rs.341 crores, market capitalisation of the company works out at Rs.93,500 crores. Hence, the company though weak in financials and asset value per share, when compared to Unitech, has the advantage of a huge land bank at its command.
Considering the earlier plan of the company to raise over Rs.13,000 crore from same issue size, it is now priced more attractively. High promoter stake of 87% and appetite of overseas investors in this leading realty company, would always remain to its advantage.
Weighing all the developments, size and financials, we recommend to invest in the stock even at the upper band, which would be fruitful and rewarding in the medium to long term.