FINANCIAL ANALYSIS OF

DLF LTD.

KUMAR DIGANT SINGH (01/10)

ANSHIKA AGARWAL
(03/10)

NEERJA BHARDWAJ
(10/10)

ANKUR GARG
(12/10)
 CURRENT SCENARIO OF REAL
ESTATE MARKET IN INDIA
 Expected to grow from the current USD 14 billion to a USD 102
billion in the next 10 years

 Driving Forces
Booming economy; accelerated GDP to 8% p.a
Realization of large commercial projects
Gradual organization of the markets in the Tier I cities
Governing legal framework relaxed
Entry of professional players equipped with expertise in real estate
development
 DLF INDIA

 DLF limited is the India’s biggest real estate developer based in New Delhi,
India
 DLF was founded in 1946 with the original name of Delhi Land & Finance
 DLF is currently sponsoring Indian Premier League (IPL) , A Twenty20 format
cricket league in India.
 Developments:
Risk & Return Analysis
Share Prices of DLF on BSE
(1-Aug-09 to 31-July-10)
 Beta ( β )
 THE SENSITIVITY OF A SECURITY TO MARKET
MOVEMENTS IS CALLED BETA .
 BETA REFLECTS THE SLOPE OF A LINEAR
REGRESSION RELATIONSHIP BETWEEN THE
RETURN ON THE SECURITY AND THE RETURN ON
THE MARKET PORTFOLIO.
 CALCULATION OF BETA
 For calculating the beta of a security, the following market
model is employed:
 Rjt = aj + bjRMt + ej

Rjt = return of security j in period t

aj = intercept term alpha

bj = regression coefficient, beta

RMt = return on market portfolio in period t

ej = random error term
 Beta reflects the slope of the above regression relationship. It
is equal to:
 Cov (Rj , RM) CorjM ρj σM CorjM σj

bj = = =

σ2M σ2M σM
 where Cov = covariance between the return on security j and
the return on market portfolio M. It is equal to:

n _ _

S (Rjt – Rj)(RMt – RM)/(n-1)
 i=1
   DLF Market
(1-Aug-2009 to 31 July 2010) 
Rj Rm

Mean -0.088 0.054

Standard Deviation (SD) 2.599 1.161

Variance of returns 6.753 1.348

n 244

Covariance (Rj , Rm) 2.142

Correlation (Rj , Rm) = Cor 0.713

Coefficient of determination ( Cor2) 0.508

 βj = Covariance (Rj ,Rm) / Variance Rm
= 2.142 / 1.348
= 1.59
= 1.60 (approx.)

OR

 βj = Correlation (Rj ,Rm) * σj / σm

= ( 0.713 * 2.599 ) / 1.161
= 1.60
 Security Market Line
Calculation Of α
Rj = α+ β(Rm)
α = avg Rj - β(avg Rm)
α = - 0.088 - 1.6 (0.054)
α = - 0.1734

Rj= -0.1734 + 1.5820 Rm

 Security Market Line
1.6

1.4

1.2

0.8

0.6

0.4

0.2

0
0 0.2 0.4 0.6 0.8 1 1.2
 Analysis of Risk of DLF
 Total Risk of security = Unique Risk + Market Risk
 Unique risk of a security represents that portion of its total risk which

stems from company-specific factors like development of a product,

labor strike. It is also called as Unsystematic Risk. It is a diversifiable

risk.

 Market risk of security represents that portion of its risk which is

attributable to economy –wide factors. It is also called systematic Risk.

It is non diversifiable risk.

 Security Variance of DLF is 6.75%.
 Total Risk = Security Variance

= Systematic Risk + Unsystematic Risk

◦ Systematic Risk = (Cor2) * Security Variance

= 0.508 * 6.75%
= 3.43 %
◦ Unsystematic Risk = (1-Cor2) * Security Variance
= (1-0.508)*6.75%
= 0.492 * 6.75%
= 3.32%

◦ Total Risk = 3.43% + 3.32% = 6.75%

Estimation of Cost of Capital
 Cost of Equity
1. CAPM Model :

KE = Rf + βj (RM - Rf )
Rf = Risk free rate of interest
βj = Beta of the security
RM = Market Return

KE = 6.5 + 1.60 (13.20 - 6.5 )

KE = 17.22 %
2. Constant Dividend Growth Model :

KE = (D1 / P0) + g
D1 = D0 * (1+g)
D1 = 2 * (1+0.1543)
D1 = 2.30

 g is taken as the CAGR of the real estate industry as per BSE

analysis from FY2000 – FY 2009.
 P0 is taken as the closing share price of DLF on 30/7/10 on BSE.

KE = (D1 / P0) + g
KE = (2.30 / 301.30) + 0.1543

KE = 16.20 %
 Cost of Debt
KD = Interest Paid (1-Tax Rate) / Sale Proceeds
KD = I (I-t) / Sale Proceed

 Total value of Long term borrowings as per company balance

sheet as on 31/03/2010 (Secured Loans + Unsecured Loans)
 Total Financial Charges paid by the company during FY10.
 Assuming tax rate as 30%

KD = 2956 (1-0.30) / 21677

KD = 9.60% (approx)

Note : As per the annual presentation published by the auditor of DLF with
quarterly results of April-June 2011 clearly states that the cost of debt of
the company is 10.50 %. .
 Weighted Average Cost of Capital
(WACC)
Book Value as on
 Source of Capital 31/3/10  Weights Cost of Source

EQUITY SHARE CAPITAL 30433 0.58 17.22%

DEBT CAPITAL 21677 0.42 9.60%

  52110    

WACC = 0.58 (17.22%) + 0.42 (9.60%)

WACC = 14.11 %
 Dividend Policy
Year 2007-08 2008-09 2009-10

Dividend Per Share

4 2 2
(DPS)
Earning Per Share
43.90 26.24 10.11
(EPS)
Dividend Payout
9.11 % 7.62% 19.78%
Ratio (DPS/EPS)

DIVIDEND YIELD = DPS / MARKET VALUE OF SHARE

DIVIDEND YEILD = 2 / 301.30

DIVIDEND YEILD = 0.66 %

Leverage Analysis
DEGREE OF OPERATING LEVERGE: (DOL) 

 It may be defined as the firm`s ability to use fixed operating

costs to magnify the effects of sales on its earnings before
interest & taxes (EBIT).

 DOL magnifies the variability of operating profits and,

hence, business risk.

 DOL = % CHANGE IN EBIT / % CHANGE IN SALES

 DOL = CONTRIBUTION / EBIT

 
DEGREE OF FINANCIAL LEVERAGE : (DFL) 

 It may be defined as the firm`s ability to use fixed financial

charges to magnify the effects of changes in EBIT on the
earnings per share (EPS).
 DFL magnifies the variability of EPS and, hence, financial
risk.
 It arises due to the presence of fixed financial charges in the
firm`s capital structure. Fixed charges include: debt principal
and interest payments, lease payments, and preferred stock
dividends.
 
 DFL = % CHANGE IN EPS / % CHANGE IN EBIT
 DFL = EBIT / EBIT – I – [ PD / (1-t) ]
DEGREE OF COMBINED LEVERAGE : (DCL) 

 It may be defined as the firm`s ability to use fixed costs

(operating as well as financial to magnify the effect of
changes in sales on the EPS.
 DCL magnifies the variability of EPS and hence, Total
Risk.It is the sum of business plus financial risk.

 DCL = % CHANGE IN EPS / % CHANGE IN SALES

 DCL = DOL * DFL
 Years 2007-08 2008-09 2009-10

EBIT (in Rs. Cr) 9,619.17 5,358.45 3,186.64

SALES (in Rs. Cr.) 14,432.89 10,035.39 7,422.87

EPS (in Rs./Share) 46.9 26.24 10.11

     

% EBIT - -44.294 -40.531

% SALES - -30.469 -26.033

% EPS - -44.051 -61.471

DOL - 1.454 1.557

DFL - 0.995 1.517

DCL - 1.4458 2.3613

Working Capital Analysis
 Working Capital
2008-09 2009-10
CURRENT ASSETS
STOCK 10928 12528
SUNDRY DEBTORS 2164 1619
CASH & BANK BALANCES 1195 928
OTHER CURRENT ASSETS 7621 7594
LOANS & ADVANCES 9719 4637
31627 27306
CURRENT LIABILITIES
CURRENT LIABILITIES 4140 4637
PROVISIONS 3684 4140
7824 8777

Net Working Capital (CA – CL) 23803 18529

 Cash Flow Statement

Particulars 2008-09 2009-10

Net Cash From Operating Activities 175 8604

Net Cash (used in)/from Investing

Activities (3590) (16281)

Net Cash (used in)/from Financing

Activities 2442 7393

Opening Cash & Cash Equivalents 2069 1096

Closing Cash & Cash Equivalents 1096 812

Net Decrease in Cash & Cash

Equivalents -973 -284
 Key Ratios

2008-09 2009-10

Current Ratio 4.04 3.11

Quick Ratio 2.65 1.68

Debt Equity Ratio 0.63 0.71

Net Profit Margin 40.38 32.36

Operating Profit Margin 57.79 48.96

Dividend Payout Ratio 7.62 18.44

PE Ratio 16.36 30.56

 Comparative Analysis of Real Estate
Industry in India
DLF HDIL OMAXE DB REALITY UNITECH

Market Capitalisation (In

Rs. Cr) 53639 10196 2284 10853 20596
Share Prices
(as on 8/9/10) 318.25 279.25 131.6 439.05 81.9

EPS 10.11 15.4 6.8 2.54 2.77

PE RATIO 30.56 27.80 19.40 175.70 39.57

NET PROFIT MARGIN 32.36% 38.09% 11.24% 30.50% 23.03%

DEBT EQUITY RATIO 0.71 0.83 1.24 1.11 1.19

DIVIDEND YEILD 0.66 ---- 1.24 ------ 0.4

BV OF SHARES 144.28 195.7 91.14 125.32 42.02

PB RATIO 2.2 1.42 1.44 3.52 1.95

 Results and Implications
For FY10 (all comparisons with FY09)

 There has been 25% decline in sales revenue of the

company in FY10 as compare to FY09.
 Consolidated PAT & EPS has been decreased 55% & 61%
respectively compare to FY09
 These decline in the profitability of the company can be
attributed to the economic slowdown which has hit the real
estate sector.
 Looking at Q1 results of FY11 we can see improvement in
the overall performance of the company .Sales for Q1FY11
were 2456 crores as compared to 1654 crores in Q1FY10 .
THANK YOU