4QFY2013 Result Update | Real Estate

June 5, 2013

DLF
Performance Highlights
Y/E March (` cr) Net sales EBITDA OPM margin (%) PAT 4QFY13 2,226 726 32.6 (4) 3QFY13 1,310 87 6.6 285 % chg (qoq) 69.9 734.1 2,597bp (101.5) 4QFY12 2,617 798 30.5 213 % chg (yoy) (15.0) (9.0) 213bp (102.0)

BUY
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code

`199 `236
12 months

Real Estate 35,417 21,731 1.5 289/184 1,067,130 2 19,568 5,924 DLF.BO DLFU@IN

Source: Company, Angel Research

For 4QFY2013, DLF reported a disappointing set of numbers, both on the revenue and profitability fronts. For 4QFY2013, the company reported a revenue of `2,226, a decline of 15.0% yoy, which is below the consensus estimate of a revenue of `2,553cr. The EBIDTAM came in at 32.6%, which is below the streets estimate of 38.7%, mainly due to (a) nil revenue booking from its new-launched projects Skycourt and Ultima, (b) higher contribution from older projects with lower operating margins and (c) cost escalations in some of the projects. Owing to lower-than-expected operating performance, one item loss, and a high interest expense, the company reported a PAT loss of `4cr for the quarter vs a profit of `213cr in 4QFY2012. Operating performance remains weak: For 4QFY2013, the company recorded sales booking of 1.99mn sqft, a decline of 12.3% qoq, mainly due to lack of new launches and weak demand. The leasing activity also remained subdued during the quarter. Leased area during the quarter stood at 0.52mn sqft (vs 0.69mn sqft as in 3QFY2013 and 0.64mn sqft as in 4QFY2012). Outlook and Valuation: During the quarter, owing to delay in closure of Aman resort sales, net debt of the company increased by `300cr sequentially to `21,731cr. Going forward, on the back of new launches, we expect sales volume of 8mn sqft and 9mn sqft for FY2014 and FY2015 respectively. In the short term, we continue to remain positive on the companys near-term plans of debt reduction. Further, with the high value of new project launches and monetization of non-core assets, we expect improvement in cash flow going forward. We value DLF on a SOTP basis and slightly adjust our NAV to `338/share due to delay in launch of phase V in Gurgaon, and apply a 30% discount to our SOTP value to arrive at a target price of `236. We thus recommend Buy on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 78.6 0.3 16.7 4.4

Abs. (%) Sensex DLF

3m (26.4)

1yr 4.3

3yr 13.7 (32.1)

1.7 21.5

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

FY2012 9,629 0.7 1,178 (23.5) 40.5 7.1 28.1 1.3 3.0 6.4 5.7 14.0

FY2013 7,773 (19.3) 689 (41.5) 33.8 4.4 45.2 1.3 (1.2) 3.7 6.9 20.3

FY2014E 8,293 6.7 969 40.7 36.5 5.7 34.8 1.2 0.8 4.4 6.3 17.3

FY2015E 9,622 16.0 1,144 18.1 36.1 6.7 29.5 1.2 1.9 5.3 5.3 14.7

Viral Shah
022-39357800 Ext: 6842 viralk.shah@angelbroking.com

Please refer to important disclosures at the end of this report

DLF | 4QFY2013 Result Update

Exhibit 1: Quarterly performance (Consolidated)

Y/E March (` 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 (`)
Source: Company, Angel Research

4QFY13 2,226 726 32.6 588 186 93 45 (20) 43.7 64 (33) (36) (4) 0.2 0.0

3QFY13 1,310 87 6.6 581 248 981 240 (8) 3.5 248 0 37 285 21.7 1.7

% chg (qoq) 69.9 734.1 2,597bp 1.3 (24.9) (90.5) (81.3) 133.9 1,150.2 (74.0)

4QFY12 2,617 798 30.5 604 164 131 161 (41) 25.7 202 (16) 26

% chg (yoy) (15.0) (9.0) 213bp (2.6) 13.7 (28.6) (72.1) (52.5) (68.1)

FY2013 7,773 2,626 33.8 2,314 796 1,323 839 125 (14.9) 714 (33) 31

FY2012 9,629 3,904 40.5 2,246 689 594 1,563 369 (23.6) 1,194 (16) 23 1,201 12.5 7.1

% chg (yoy) (19.3) (32.7) (676)bp 3.0 15.6 122.5 (46.3) (66.1) (40.2)

(101.5) (2,193)bp (101.5)

213 8.1 1.3

(102.0) (831)bp (102.0)

712 9.2 4.2

(40.7) (331)bp (40.7)

Exhibit 2: DLF: Actual vs Consensus Estimates- 4QFY2013

(` cr) Net Sales Operating Profit OPM (%) Reported PAT
Source: Company, Angel Research

Actual 2,226 726 32.6 (4)

Estimates 2,553 988 38.7 156.0

Var (%) (12.8) (26.5) (609)bp (102.7)

June 5, 2013

DLF | 4QFY2013 Result Update

Operating performance remains weak

For 4QFY2013, the company recorded sales bookings of 1.99mn sqft, a decline of 12.3% qoq, mainly due to lack of new launches and weak demand. The leasing activity also remained subdued during the quarter. Leased area during the quarter stood at 0.52mn sqft (vs 0.69mn sqft as in 3QFY2013 and 0.64mn sqft as in 4QFY2012).

Exhibit 3: Development Company sales (Mn Sqft)

8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1.28 1.34 1.59 3.30 2.27 1.99 6.75

Exhibit 4: Leasing sales (Mn Sqft)

1.2 1.0 0.8 0.6 0.42 0.4 0.2 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 0.96

0.66

0.64 0.51

0.69 0.52

Source: Company, Angel Research

Source: Company, Angel Research

Lower-than-expected operating performance

DLF reported a revenue of `2,226cr for 4QFY2013, a decline of 15.0% yoy, which is below consensus estimate of `2,553cr. The EBIDTAM came in at 32.6%, which is below street estimate of 38.7%, mainly due to (a) nil revenue booking from its new-launched projects Skycourt and Ultima, (b) higher contribution from older projects with lower operating margins and (c) cost escalations in some projects. Owing to the lower-than-expected operating performance, one item loss (`33cr) on account of sale of investment, and high interest expense, the company reported a loss of `4cr for the quarter vs a profit of `213cr in 4QFY2012.

Exhibit 5: Revenue trend

3,000 2,500 (2.5) 2,000 1,500 1,000 2,532 2,034 2,617 2,198 500 0 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 Revenue (` cr) (LHS) yoy change (RHS) (18.0) (10.1) (19.5) 2,040 1,310 2,226 (15.0) 6.9 10.0 5.0 0.0 (5.0) (10.0) (15.0) (20.0) (25.0) (30.0) (35.0) (40.0) (35.6)

Exhibit 6: High interest cost hurts profitability

1,400 1,200 1,000 800 600 400 1,173 1,067 823 798 746 200 0 87 6.6 726 30.5 46.3 40.4 36.6 32.6 60.0 48.6 50.0 40.0 30.0 20.0 10.0 0.0

2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 EBITDA (` cr) (LHS) EBITDA margin (RHS)

Source: Company, Angel Research

Source: Company, Angel Research

June 5, 2013

DLF | 4QFY2013 Result Update

Debt reduction continues to remain the key

During the quarter, the company has reduced its gross debt levels by `688cr to `24,801. This has helped the company to reduce its debt-to-equity ratio to 0.79x from 0.85x in 3QFY2013. As per the Management, the sale of Aman Resorts, wind power business and the recent fund raising done in May13 would help the company bring down its debt to `17,121cr by 4QFY2014. We believe this would help the company improve its profitability going forward.

Exhibit 7: Debt reduction through asset monetisation

23,500 23,000 22,500 22,000 21,500 22,927 22,758 22,725 22,680 23,220 21,433 21,731 21,000 20,500 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 Net debt (` cr) Debt-to- equity 0.8 0.75 0.95 0.9 0.85

Exhibit 8: Area under execution

60.0 50.0 40.0 30.0 20.0 10.0 39.4 39.7 35.0 40.6 40.6 47.6 54.0

0.7

1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13

Source: Company, Angel Research

Source: Company, Angel Research

Investment argument
Outlook looks positive going ahead
DLF is planning to bring down its debt to `11,000cr over the next three years through improvement in cash flow, monetization of assets and equity infusion. As per the Management, the company expects normalized EBITDA of `8,250cr per annum from FY2016 onwards owing to (a) new rental assets, (b) renegotiations in existing rental assets and (c) launch of high value residential projects. Further, to boost its rental asset sales, the company is adding significant value in the ecosystem by providing enhanced connectivity, safety & security initiatives and sustainability efforts.

Outlook and valuation

The net debt of the company has increased by `300cr sequentially to `21,731cr, owing to delay in closure of Aman Resort. Going forward, on the back of new launches, we expect a sales volume of 8mn sqft and 9mn sqft for FY2014 and FY2015 respectively. In the short term, we continue to remain positive on the companys near-term plans of debt reduction. Further with the high value of new project launches and monetization of non-core assets, we expect improvement in cash flow going forward. We value DLF on a SOTP basis and slightly adjust our NAV to `338/share due to delay in launch of phase V in Gurgaon, and apply a 30% discount to our SOTP value to arrive at a target price of `236. We recommend a Buy rating on the stock.

June 5, 2013

DLF | 4QFY2013 Result Update

Company Background
DLF is India's largest real estate developer with over 60 years of experience in the industry. The company is mainly involved in the development of residential, commercial, and retail properties. It has developed many well known properties in Gurgaon, Delhi including South Extension, Greater Kailash, Kailash Colony and Hauz Khas. The company has also forayed into infrastructure, SEZ and hotel businesses. The company has already developed ~230 mn sqft, including 22 urban colonies and an integrated township - DLF city (3,000 acres) in Gurgaon.

June 5, 2013

DLF | 4QFY2013 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 Cost of construction Other Construction 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 earnings of asso. Less: Minority interest (MI) Prior period items PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY2010 FY2011 FY2012 FY2013 FY2014E FY2015E 7,423 (0) 7,423 7,423 (26.0) 3,911 2,580 865 467 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 0 9,561 9,561 28.8 5,808 4,300 936 572 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) 9,629 0 9,629 9,629 0.7 5,725 3,967 1,171 586 3,904 4.0 40.5 689 3,215 3.0 33.4 2,246 594 38.0 1,563 (21.8) (16.0) 1,547 369 23.9 1,178 1.5 (33.6) 9.5 1,201 1,178 (26.8) 12.5 7.1 7.1 (26.8) 7,773 (0) 7,773 7,773 (19.3) 5,147 3,356 1,195 596 2,626 (32.7) 33.8 796 1,830 (43.1) 23.5 2,314 1,323 157.7 839 (46.3) (33.0) 806 125 15.5 681 4.1 (44.5) 17.5 747 689 (37.8) 9.6 4.4 4.4 (37.8) 8,293 0 8,293 8,293 6.7 5,266 3,375 1,327 564 3,027 15.2 36.5 870 2,157 17.9 26.0 1,949 1,067 83.7 1,275 52.0 1,275 306 24.0 969 969 969 29.8 11.7 5.7 5.7 29.8 9,622 0 9,622 9,622 16.0 6,145 4,125 1,395 625 3,477 14.9 36.1 923 2,554 18.4 26.5 1,780 934 54.7 1,708 33.9 1,708 564 33.0 1,144 1,144 1,144 18.1 11.9 6.7 6.7 18.1

June 5, 2013

DLF | 4QFY2013 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 liabilities & Prov. Net Current Assets Mis. Exp. not written off Total Assets

FY2010 339 5,920 24,173 24,513 628 21,677 251 52,989 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

FY2011 339 1,810 24,182 24,522 575 24,094 (163) 50,838 19,828 1,956 17,872 10,234 1,384 996 30,168 1,322 4,166 24,680 9,816 20,352 50,838

FY2012 339 1,810 25,086 25,426 421 22,545 (335) 49,866 21,295 2,581 18,714 8,993 1,625 1,127 32,596 1,506 5,174 25,916 13,188 19,408 49,866

FY2013 339 1,810 25,378 25,717 402 21,320 (656) 48,593 18,885 3,377 17,414 8,707 1,562 1,334 34,954 1,844 5,330 27,779 15,377 19,576 48,593

FY2014E 339 1,810 26,767 27,107 402 19,756 (656) 48,419 22,286 4,247 18,039 9,282 1,562 1,334 35,018 1,041 5,759 28,218 16,816 18,202 48,419

FY2015E 339 1,810 27,912 28,251 402 18,187 (656) 47,994 23,489 5,169 18,320 9,251 1,562 1,334 35,837 1,009 6,014 28,814 18,309 17,528 47,994

June 5, 2013

DLF | 4QFY2013 Result Update

Cash Flow Statement (Consolidated)

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc)./Dec. in Fixed Assets (Inc.)/Dec in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY2010 2,505 752 5,002 (428) (702) 7,129 (14,838) (4,103) 428 (18,513) 0 5,357 (417) 6,177 11,117 (267) 1,195 928 FY2011 2,000 629 (1,430) (584) (459) 156 (1,049) 4,509 584 4,044 2,418 (797) (5,428) (3,807) 394 928 1,322 FY2012 1,547 625 1,128 (594) (369) 2,337 (226) (131) 594 238 (1,549) (841) (2,391) 184 1,322 1,506 FY2013 FY2014E FY2015E 806 796 169 (1,323) (125) 324 790 (207) 1,323 1,906 (1,225) (666) (1,891) 338 1,506 1,844 1,275 870 571 (1,067) (306) 1,343 (2,070) 1,067 (1,003) (1,563) 420 (1,143) (803) 1,844 1,041 1,708 923 643 (934) (564) 1,776 (1,173) 934 (239) (1,569) 0 (1,569) (32) 1,041 1,009

June 5, 2013

DLF | 4QFY2013 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 (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage 0.8 5.9 2.9 0.9 6.1 1.8 0.8 5.4 1.4 0.8 7.4 0.8 0.7 6.2 1.1 0.6 4.9 1.4 0.6 576 93 216 988 0.5 525 61 263 699 0.5 592 63 408 700 0.4 794 80 635 837 0.4 784 74 677 768 0.4 686 70 635 639 6.8 8.9 7.6 6.0 8.1 6.3 6.4 8.5 4.7 3.7 4.9 2.7 4.4 5.9 3.7 5.3 7.0 4.1 42.9 72.0 0.2 5.0 4.2 0.8 5.6 32.7 77.0 0.2 4.7 5.7 0.9 3.8 33.4 76.1 0.2 5.0 7.3 0.9 3.0 23.5 84.5 0.2 3.3 8.9 0.8 (1.2) 26.0 76.0 0.2 3.5 7.2 0.7 0.8 26.5 67.0 0.2 3.6 6.3 0.6 1.9 10.1 10.1 12.5 2.5 144.4 9.7 9.7 12.8 4.7 144.5 7.1 7.1 11.0 149.8 4.4 4.4 8.8 151.5 5.7 5.7 10.8 159.7 6.7 6.7 12.2 166.4 19.6 15.9 1.4 1.2 7.3 15.5 1.0 20.6 15.6 1.4 2.4 5.9 15.1 1.1 28.1 18.1 1.3 5.7 14.0 1.1 45.2 22.7 1.3 6.9 20.3 1.1 34.8 18.4 1.2 6.3 17.3 1.1 29.5 16.3 1.2 5.3 14.7 1.1 FY2010 FY2011 FY2012 FY2013 FY2014E FY2015E

June 5, 2013

DLF | 4QFY2013 Result Update

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E-mail: research@angeltrade.com

Website: www.angeltrade.com

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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%)

June 5, 2013

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