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Home Articles Delhi Land and Finance Company (DLF) - Investment Thesis

Delhi Land and Finance Company (DLF) - Investment Thesis

Mr. Rahul Singh | Posted On Monday, October 13,2008, 02:44 AM

Delhi Land and Finance Company (DLF) - Investment Thesis

 

 

Company description
DLF is the largest real estate developer in world. The group has over 224 million sq. ft. of existing development and 748 million sq. ft. of planned projects. The core business traditionally has been into three prime divisions: Homes, Offices and Shopping Malls. To these DLF has added three more divisions: Hotels, Infrastructure and SEZs.

Key investment highlights
• There would be a lower demand for commercial properties in Metros and Tier-1 cities due to slow down in IT/ITES industry
• Higher interest rates on home loan has forced customers to postpone their decision to purchase properties
• DLF has decided to buyback stocks worth Rs. 1100 crores which we believe is not only a wrong move but also ill-timed
• DLF has huge and excellent land bank and has positioned itself for industry slowdown by shifting to mid-income housing

Key drivers
• Mid-income housing has helped it to somewhat neutralize the slump in demand for high-end apartments
• Reduced profit margin from the previous years due to lower margin mid-income housing
• Proposed expansion plans in Southern cities such as Bangalore and Kochi will diversify its portfolio in terms of geography

Sector views
Real estate sector has been worst hit with the rising interest rates, inflation and global credit crunch. Developers have seen significant drop in demand from customers due to rising rates which has driven away speculators from the market. Thus, we see price correction in the range of 10-15% in most regions. However, long term view of the industry is still strong due to intact growth story of India

Key risks
• Acute credit crunch in global capital markets may derail its expansion plan
• Prolonged inflationary environment in the country may force buyers to postpone or even cancel their purchase plans

Valuation

 

 

 

DLF

UNITECH

PURVANKARA

P/E (x)

FY08A

FY09E

7.5

8.1

31.1

12.8

34.4

17.5

P/B (x)

FY08A

FY09E

2.6

2.5

12.5

4.7

4.24

2.92

ROE (%)

FY08A

FY09E

71.1

31.8

59.4

44.2

33.5

18.4

I believe DLF is well-positioned to handle this financial storm and uncertainty because
1) It has huge and excellent land bank
2) It has very good execution track record and better prepared than others to handle this downturn in the demand

I recommend a HOLD on the stock because a lot of market negative sentiment is currently built-in the stock price. DLF is fundamentally a strong company with significant growth potential. The global credit crunch might improve in the next couple of quarters and inflation figures may come down to single-digit by June-09.

Stock View
Maintain neutral (HOLD)

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