CRISIL Research Ier Report Dlf

8/3/2019 CRISIL Research Ier Report Dlf

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Enhancing investment decision

Independent Equity Research

Indepth analysis of the fundamentals and valuation

Co r p o ra te Go ve r na n ce

n e s P r c t B u s i s o s p e s

E va l ua t io n o f Ma ge e n t na m

n a n c i a l P e r f r m a n c e F i o

DLF Limited


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CRISIL Independent Equity Research Team

Senior DirectorS. Venkataraman

Chetan Majithia [email protected] +91 (22) 6644 4148Vishal Rampuria [email protected] +91 (22) 6691 3525Sagar Parikh [email protected] +91 (22) 6691 3502Nihag Shah [email protected] +91 (22) 6691 3533Ravi Dodhia [email protected] +91 (22) 6691 3508Sonali Salgaonkar [email protected] +91 (22) 6691 3597Sudnya Goel [email protected] +91 (22) 6644 1983

Neeta Khilnani [email protected] +91 (22) 6644 1882

Nagarajan Narasimhan [email protected] +91 (22) 6691 3536 Ajay D'Souza [email protected] +91 (22) 6691 3567Manoj Mohta [email protected] +91 (22) 6691 3554Sachin Mathur [email protected] +91 (22) 6691 3541Sridhar C [email protected] +91 (22) 6691 3546Sudhir Nair [email protected] +91 (22) 6691 3526

Vishal Thakkar [email protected] +91 98 201 86264Vinaya Dongre [email protected] +91 99 202 25174Sagar Sawarkar [email protected] +91 98 216 38322Sejal Kothari [email protected] +91 99 206 25746Gayathri S [email protected] +91 98 864 98175

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1

Independent Research Report DLF LtdGood Fundamentals but Downside valuation Industry : Real Estate

Date: September 22, 2009

Land bank gives DLF a competitive edgeDLF has a pan-India presence with reported land resource of 425 million square feet (mn sq

ft) at an average cost of around Rs 445 per sq ft. as on March 31, 2009. The large, low-costland bank will enable DLF to command a healthy margin even during cyclical downturn. DLF

has development rights to around 92% of its land bank through subsidiaries, purchase

agreements, sole development rights or memoranda of understanding for acquisition.

Higher ability to weather the risks and industry cyclicalityThough the ongoing slowdown in the sector will adversely affect DLFs earning and cash

flows in the medium term, we believe that DLF is better placed as compared to its peers in

the country to withstand tough times and weather the cyclical risks inherent to real estate

industry, due to its low cost land bank and healthy financial profile

Residential sales volumes drops in FY09, slow recovery expectedWe expect gradual recovery in residential sales bookings to be at 8.8 mn sq ft in FY10 and

11.6 mn sq ft in FY11, as compared with bookings of 6.3 mn sq ft in FY09. The recovery is

expected is primarily due to our expectations of improvement in residential demand owing to

improvement in affordability, steady economic growth and greater liquidity.

Sales and earnings to disappoint in the medium termWe expect DLFs top line to decline 34% (YoY) to Rs. 66 Bn in FY10, due to drop in sales

volumes and average sales realisations. So far, the companys revenue growth was primarily

driven by sales to DLF Assets Ltd (DAL), a promoter group controlled company, which

contributed more than 40% to DLFs profit till FY09.

Office revenues from DAL to dip sharplyIn Q4FY09, revenue from DAL declined 83% YoY. No further revenue was recongnised on

account of sale to DAL in Q1FY10. We expect slowdown in revenues from DAL to continue

due to slowdown in demand for leased office space. Till date, DLF has recorded DALs sales

of nearly Rs 102 Bn, out of which, 23% are in the receivables (Refer chart 3 on page 6).

We assign DLF 3/5 grade on Fundamental and 2/5 on ValuationDLFs fundamental grade of 3/5 indicates that the fundamentals of the company are Good

relative to other listed securities in India. The grading factors in strong management

capabilities and DLFs leadership position in the industry. However, the grading is tempered

by deteriorating financials prospect of the industry as well that of DLF in the prevailing cyclical

downturn. The valuation grade of 2/5 indicates that the current market price of the stock has

a Downside (Fundamental Value Rs 356) based on Sum of the Parts (SOTP) approach.

Key Forecast(Rs. Mn) FY07 FY08 FY09 FY10E FY11E FY12EOperating Income 26,374 144,375 100,354 66,061 79,293 89,063Operating profit 14,897 97,151 55,900 28,203 34,539 40,559Net profit 19,336 78,120 44,696 18,570 24,325 28,973EPS-Rs 12.8 46.9 26.2 10.9 14.3 17.1EPS growth (%) n.a. 267.8 (44.1) (58.3) 31.0 19.1BV per share (Rs) 17 112 134 143 155 170PE (x) 33.6 9.1 16.3 39.2 29.9 25.1

P/BV (x) 25.2 3.8 3.2 3.0 2.8 2.5ROCE (%) 21.1 43.4 15.9 7.5 10.3 12.4ROE (%) 54.4 67.2 20.4 7.5 9.3 10.2EV/EBITDA (x) 26.2 8.5 14.9 28.6 23.8 20.5Source: Company, CRISIL Equities Estimate

CFV Matrix

1 2 3 4 5Valuation Grade

F u n

d a m e n

t a l G r a

d e5

4

3

2

1

Key stock statisticsFundamental Value (Rs per share) 356

Current Market Price (Rs per share) 429

Shares outstanding (Mn) 1,697

Market cap (Rs Mn) 727,758

Enterprise value (Rs Mn) 892,964

52 week range (Rs) (H/L) 455/124

P/E on EPS estimate (FY10E) 39.2

Beta 1.7

Free float (%) 21.3

Share Price Movement*

-

50

100

150

200

250

Aug-07 Jan-08 Jun-08 Nov-08 Apr-09 Sep-09

DLF S&P CNX Nifty

- Indexed to 100

Shareholding as on June09

FIIs15.4

MFs, FIs, banks& insurance cos.

0.6

Non-Institutional5.3

Indianpromoters

78.7

(per cent)

Analytical Contact:

Chetan Majithia (Head, Equities) +91 22 66444148Rajeev Choudhary +91 22 66913531Sagar Parikh +91 22 66913502

Email : [email protected]

Please refer CRISIL Disclaimer on the last page of the report


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CRISIL Equities

DLF Ltd

2

Fundamental Grading Grade: 3/5

We assign DLF a Fundamental Grade of 3/5. This grade indicates that thefundamentals of the company are Good relative to other listed securities in India.The fundamental grade factors in:

Strong management capability leading to better market position and establishedtrack record in the real estate sector DLF as so far developed over 45 mn sqft across residential, offices and retail segments and has sold plots of nearly196 mn sq ft. The company is credited with the development of Indias largestprivate township, the 3,000 acres DLF City at Gurgaon.

DLFs competitive edge due to its large low-cost land bank and superior business profile The company has a pan-India presence with reported land

resource of 425 mn sq ft as on March 31, 2009 spread across 32 cities, at atotal land cost of Rs 189 Bn. Based on this, the companys average cost of landresource works to around Rs 445 per sq ft.

Cyclical downturn in the real estate sector, which is expected to have asignificant impact on sales and pricing. We expect DLFs topline to decline 34%(YoY) to Rs. 66 Bn in FY10. We expect gradual recovery in sales due from themiddle of FY11 on expectations of improvement in residential demand owing toimprovement in affordability, steady economic growth and greater liquidity.

Receivables from DLF Assets Ltd, a promoter group controlled company

DLFs phenomenal revenue growth in the last two years (FY08 and FY09) wasprimarily driven by sales to DLF Assets Ltd (DAL), a promoter group controlledcompany, which contributes more than 40% to DLFs profit till FY09. Till date,DLF has recorded DALs sales of ~ Rs 102 Bn, out of which, 23% are still inthe receivables

Weakening financial ratios and negative earning growth - DLFs earnings areexpected to decline 58% (YoY) to Rs 18.6 Bn in FY10, due to waning revenueand margins.

CRISILs assessment of DLFs Corporate Governance: CRISIL Equitiesassesses the companys disclosure levels, based on balance sheet disclosures,web site information etc as average, which indicates scope for further strengthening. However, the company level of disclosure with respective to itsfinancial performance, land resources and operations are better as comparedwith its domestic peers.

DLFs fundamentals are Good relative to other listed securities inIndia


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CRISIL Equities

DLF Ltd

3

Grading Rationale

Strong market position and established track record augurs well

DLF has an established track record in real estate projects across segments. Thecompany has so far developed over 45 mn sq ft across residential, offices and retailsegments and has sold plots of nearly 196 mn sq ft; these figures are the highest for any private developer in India. The management has demonstrated a tradition of innovation in the India real estate market and is credited with the development of Indias largest private township, the 3,000 acres DLF City at Gurgaon.

Further, DLF is strengthening its execution capability to support its plans; it hasformed JVs with international players such as Laing O Rourke for construction andWSP for engineering and project management services. The company has a strongmanagement team and we believe that it is likely to maintain its market leadership

over the medium term, given its strong brand, presence across residential, retail andoffices business and focus on scaling up its execution capabilities

Land resources give DLF a competitive edge

DLF has a pan-India presence with reported land resource of 425 mn sq ft as onMarch 31, 2009 spread across 32 cities, at a total land cost of Rs 189 Bn. Based onthis, the companys average cost of land resource works to around Rs 445 per sq ft.DLF has development rights to around 92% of its land bank through subsidiaries,purchase agreements, sole development rights or memoranda of understanding for acquisition. These contracts face certain completion and title risk but are within the

normal acceptable standards of the real estate industry in India. More than 75% of its land resources are in NCR, Kolkata, Bengalaru and Chennai. The company haspaid nearly 99% of its land resource.

Table 1: Details of Land Resource as of March 31, 2009

(In mn sq feet) Super Metros

Metros Tier-I Tier-II Total

Residential 151 72 48 19 290Super Luxury 4 0 0 0 4Luxury 32 0 0 0 32Mid Income / Villas / Plots 115 72 48 19 254Office 52 12 1 2 67

Retail 34 7 5 9 55Hospitality 4 5 2 2 13

Total 241 96 56 32 425

57% 23% 13% 8% 100%

Super Metros: Delhi Metropolitan Region & MumbaiMetros: Chennai, Bengalaru, KolkataTier I: Chandigarh, Pune, Goa, Cochin, Nagpur, Hyderabad, Coimbatore & Bhubneshwar Tier-II: Vadodra, Ghandhi Nagar, Ludhiana, Amritsar, Jalandhar, Sonipat, Panipat, Lucknow,Indore & ShimlaSource: Company

Most of the DLFs land reserves are available in the form of large, contiguous plotsof land. This would enable the company to develop townships similar to DLF city in

NCR. We believe that the current size of owned reserves would be sufficient for DLFs planned developments over the next 10 years and the low cost of land willprovide it with a competitive edge while protecting it against land price inflation.

Pan-India presence with low-cost land bank augurs well for DLFsgrowth

DLF is the countrys only privatedeveloper to have developed a largeintegrated township, DLF City at Gurgaon

DLF has paid nearly 99% of its land resource as on March09


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CRISIL Equities

DLF Ltd

4

The company reduced its land bank from 751 msf in Q3FY09 to 425 mn square feetby exiting from Mega township projects, which primarily included Bidadi andDankuni projects. The Bidadi and Dankuni projects comprises nearly 167 and 105

mn sq ft of land under Bidadi townships (Bengalaru) and Dankuni project (WestBengal), respectively. We view the exiting from Bidadi and Dankuni townships aspositive development from the company as these projects were witnessingregulatory clearances issues in land acquisition due to political disturbances in theregion .

As per Red herring prospectus filed by DLF in June 2007, nearly half of its landreserves comprise agricultural land, for which it has not yet obtained a certificate for change of land use. DLF managements perceives this risk to be theoretical andexpects to get the land free of encumbrances to title and obtain a certificate for change of land use, by paying requisite fees as and when the development needarises.

Higher ability than peers to weather the risks and cyclicalityinherent to real estate industry

DLF is better placed as compared to its peers to withstand tough times and weather the risks and cyclicality that is inherent to real estate industry, due to its low costland bank, healthy financial profile and low gearing as compared to other real estateplayers in the country.The real estate sector is cyclical, and is characterised by volatility in prices. Thoughthe ongoing slowdown in the sector will adversely affect DLFs earning and cash

flows in the medium term, we believe that the company superior business profilewould, to an extent, help reduce the impact of cyclicality in the real estate market.DLF has a sound capital structure as compared to its peers, with a gearing of 0.7times as on March 31, 2009.

Table 2: Peers comparison (FY09)

Companies DLF Unitech ParsvnathDevelopersSobha

Developer

Operating Income 100,354 28,883 6,984 9,832

Net worth 227,578 52,090 20,027 10,874 S i z e

( R s .

M n

)

Total assets 488,906 262,927 49,730 36,562

NPM 43% 41% 16% 11%ROE 20% 27% 6% 11%

ROCE 16% 11% 5% 4%Sales growth(YoY) -30% -30% -61% -32%

PAT growth (YoY) -43% -28% -73% -52% K e y

R a

t i o s

Debt / Equity 0.7 2.0 1.0 1.8

Source: Prowess, CRISIL Equities

Exit from Bidadi and Dankuni townships positive for DLF


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CRISIL Equities

DLF Ltd

5

Focus on mid-income homes to lead to drop in margins

In the current environment, we expect DLF to increasingly shift its focus to thelower-margin (nearly 34% in FY09) mid-income residential segments from thehigher-margin (70%) super luxury and luxury categories. As detailed in the belowtable, DLF has planned more residential projects in the mid-income category of homes. This change in sales mix coupled with decline in realisations due to thecyclical downturn in the real estate sector would cause margins in residentialbusiness to fall to around 32% and stabilise thereafter.

Table 3: Development potential

Residential Land Resource (mn sq ft) Super Metros Metros Tier-I Tier-II Total

Super Luxury 4 - - - 4 Luxury 32 - - - 3 2Mid Income / Villas / Plots 115 72 48 19 254

Total 151 72 48 19 290

Source: Company

Chart 1: Sales and realization forecasts (residential) Chart 2: Gross margin (residential)

8.96.0

8.310.9 10.1

0.7 1.11.1

0.3

0.5

4,114

2,856

2,472 2,601

3,058

-

24

6

8

10

12

14

16

18

FY08 FY09 FY10E FY11E FY12E

R e s

i d e n

t i a l s a

l e s

b o o

k e d

( m n s q u a r e

f e e t

)

-

5001,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

A v g r e a

l i s a

t i o n

( R s / s f

)

M id In come / Plots Su pe r Lu xury an d Lu xury Avg re alisatio n (Rs/sf)

0%

10%

20%

30%

40%

50%

60%


Source: Company, CRISIL Equities Estimate Source: Company, CRISIL Equities Estimate

Residential sales volumes drops in FY09, slow recovery expected

DLF s residential sales volume decreased to 6.3 mn sq ft in FY09 as compared with10 mn sq ft in FY08. During the real estate boom period in FY08 and in FY09, DLFs

sales and delivery stood at mere 16.3 mn sq ft and 4.1 mn sq ft, respectively.Therefore, DLF is unlikely to launch more than about 45 mn sq ft over the next 3years.

We expect gradual recovery in residential sales bookings to be at 8.8 mn sq ft inFY10 and 11.6 mn sq ft in FY11, as compared with bookings of 6.3 mn sq ft inFY09. The recovery is expected is primarily due to our expectations of improvementin residential demand owing to improvement in affordability, steady economicgrowth and greater liquidity.

Development plan is tilted towardslow-margin mid-income homes

Residential sales volume to recover gradually after taking a sharp hit inFY09

Gross margin in residential segment to dip to ~ 26% in FY10E from ~ 50%in FY08


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CRISIL Equities

DLF Ltd

6

Table 4: Operating statistics (residential)

In mn sq feet FY08 FY09 FY10E FY11E FY12E

Sales booked 10.0 6.3 8.8 11.6 11.3Delivery 2.0 2.1 2.7 3.7 3.7Launch 5.4 4.1 12.9 16.9 15.1

Source: Company, CRISIL Equities Estimate

Office revenues from DAL to dip sharply

DLFs phenomenal revenue growth in the last two years (FY08 and FY09) wasprimarily driven by sales to DLF Assets Ltd (DAL), a promoter group company,which contributes more than 40% to DLFs profit till FY09. Much of DLFs bookedoffice sales of 13.5 mn sq ft during FY08 to FY09 were on account of salearrangement with DAL. Accounting for around 38-40% of the total revenues tillFY09, DLFs dependence on DAL was significant.

However, in the fourth quarter of FY09, revenues from DAL declined by 83% y-o-yand the company has stated that DAL will reduce its purchase from DLF for severalquarters due to the slowdown in demand for leased office space. No further revenuewas recognised on account of sale to DAL in Q1FY10

Without DAL, DLFs top line and profit after tax (PAT) will be highly eroded. DLF hasbooked DALs sales of nearly 13.6 mn sq ft till March 31, 2009, at a capitalizationrate of 9% (out of the total of nearly 19 mn sq ft, as per agreement with DAL) and

delivered nearly 5.1 mn sq ft of pre- leased commercial property to DAL till March31, 2009.

Chart 3: DLF DAL arrangement

DLF DAL

Option 1: Overseas REIT listing Status - Getting delayed due to current economicclimate

Promoter group

Sale of officespaces to DAL till date- Rs 102 Bn

Amount paid by DAL to DLF till dateRs. 79 Bn.

Amount outstanding to DLFRs. 23 Bn.

DAL - Source of funding

Option 2: Private Equity Investment Status - DE Shaw and Symphony Capital has alreadyinvested $1.1 billion in DAL . DAL is scouting for furtherprivate equity investors

Option 3: Lease Rental Discounting Status - DAL is expected to have 10 mn sq feet of pre -leased offices spaces by end of FY09 and can paysome of DLF 's outstanding through LR discountingmode of financin

Owns 78.7%in DLF

Owns 100%in DAL

Option 4: Infusion of funds by promoter in DALStatus - The promoter sold their 10% DLF stake forRs. 38 Bn, of which Rs . 20 Bn was to be used toprovide exit to DE Shaw from DAL and Rs. 18 Bn tobe infused into DAL , which will in turn be used to pay

Source: CRISIL Equities

DLF revenues to fall sharply inFY10 in the absence of DALrevenue

In Q4FY09, sales to DAL to dip83% YoY. No further revenue wasrecognised on account of sale toDAL in Q1FY10


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CRISIL Equities

DLF Ltd

7

Till date, DLF has recorded DALs sales of ~ Rs 102 Bn, out of which, 23% are stillin the receivables. The much-awaited Singapore listing of DLF Office Trust, the realestate investment trust of DAL, has been delayed. So far, DAL has received fundingfrom private equities of $1.05 Bn and is scouting for further investors through private

equity or lease discounting route of its rental portfolio.

As per the recent news DE Shaw has expressed its interest to exit DAL. To providean exit to DE Shaw and pay DLF, DLFs promoters has sold 10% stake in DLF (168million shares) and realised nearly Rs. 40 Bn. Part of the sale proceeds was to beused to provide exit to DE Shaw from DAL ( ~Rs. 20 Bn ) and the balance (~ Rs. 20Bn) to pay DLF. Moreover, if DE Shaw chose not to completely exit from DAL, thiswould enable DAL to clear more of its outstanding to DLF. Consequently, DAL paidRs. 25 Bn to DLF in Q1FY10.

Besides, DAL is expected to have 10 mn sq feet of pre-leased offices space by endof FY11 and can pay some of DLFs outstanding through lease rental discountingmode of financing. We believe that any positive developments on the DAL fundingfront will further ease DLFs liquidity concerns.

Table 5: DAL SalesOffice business - Sale to DAL FY08 FY09 FY10E FY11E FY12E

DLF's total sales ( Rs. Bn) 144.3 100.4 59.6 71.4 79.9

Sales to DAL (Rs Bn) 53.5 40.0 0.0 0.0 0.0

DAL receivables (Rs Bn) 19.4 48.6 18.6 8.6 8.6


Revenue mix from offices to tilt towards lease

During FY08-FY09, the company has booked lease of 5.8 mn sq ft and sales of 13.1mn sq ft (primarily to DAL). Considering the deferral of the DAL projects, suspensionof various projects announced by the company, and no expectations for any neworders from DAL, we expect the company to launch not more than 8 mn sq ft over the next three years.

Table 6: Operating statistics (office)

We expect the companys lease portfolio in offices to increase gradually to 15 mn sqft by FY12 from around 10 mn sq ft in FY09 in line with DLFs strategy to move frombuild and sell to a mix of sale and lease. Sale of offices is likely to decrease toaround 2 mn sq ft per annum post the delivery of properties to DAL. The margins inoffice sales are expected to dip to 70% in FY10 from around 78% in FY08 due to a15% assumed dip in average sale realisations in FY10.


Sales booked 8.7 4.8 2.0 2.0 2.0Lease booked 4.7 1.1 1.5 2.0 2.0

Delivery 5.6 5.0 4.5 3.0 3.0


DLF moving towards stable

revenue base by expanding itslease portfolio

Without DAL, DLFs top line and profit after tax (PAT) will be highly eroded

DAL paid Rs. 25 Bn to DLF in Q1FY10.We believe that the positivedevelopment on DAL funding front has ease DLFs liquidity concerns.


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CRISIL Equities

DLF Ltd

8

Chart 4: Lease - Revenue forecasts Chart 5: Office sales Revenue and volume forecasts

9 1011

1315

65

55 55

58

53

-

3

6

9

12

15

18


L e a s e p o r t

f o l i o ( m s f

)

-

10.0

20.0

30.0

40.0

50.0

60.0

A v g

L e a s e

R e n

t a l ( R s / s f p e r

m o n

t h )

Le ase portfolio (msf) Avg . le ase Ren ta l ( Rs/sf p er mo nth)

8.7

4.8

2.0 2.0 2.0

8,211

6,979 6,979

7,328

7,773

0

1

2

3

4

5

6

7

8

9

10


S a l e s

b o o k e d

( m s f

)

6,200

6,400

6,600

6,800

7,000

7,200

7,400

7,600

7,8008,000

8,200

8,400

A v g r e a l

i s a t

i o n

( R s / s f )

Office Sales booked (msf) Avg realisation (Rs/sf)


Note: Average lease rental reflects the average lease rental for fresh

lease booked during the year


Retail sales to dip due to cyclical downturn

During FY08-FY09, DLF booked lease of 0.9 mn sq ft and sales of 4.3 mn sq ft.We expect the company to launch not more than 6 mn sq ft over the next threeyears given the current cyclical downturn in retail.

Table 7: Operating statistics (retail)


Sales booked 3.1 1.3 1.6 1.8 1.9Lease booked 0.7 0.3 0.4 0.4 0.4

Delivery 1.4 0.2 1.9 2.0 2.0


Going forward, we expect DLFs outright retail sale to decrease and margins to dipto about 60% in FY10 from 70% in FY08 due to a 15% assumed dip in FY10average realization.

Chart 6: Retail sales - Revenue forecast

3.1

1.31.6 1.8

1.9

14,530

6,918

8,1396,918 7,264

0

1

1

2

2

3

3

4


S a l e s

b o o k e d

( m s f

)

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

A v g r e a l

i s a t

i o n

( R s / s f

)

Retail sales booked (msf) Avg realisation (Rs/sf)



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CRISIL Equities

DLF Ltd

9

Financial Outlook

Sales volume and realisation to disappoint in the medium term

We expect DLFs topline to decline 34% to Rs 66 Bn in FY10. This significantdecline is mainly due to the anticipated drop in sales volumes and average salerealisations. We believe that the company experienced one of its best years inFY08, when its revenues rose by 447% YoY to Rs 144 Bn. This growth was drivenby healthy sales realisations and bookings, mostly helped by sales to DAL. We havealready seen revenue shrinking in the FY09 to Rs. 100 Bn in FY09, mainly due todeclining sales to DAL.

Sales volumes are expected to decline to nearly 12.4 mn sq ft in FY10, mainly dueto decline in office sales volume to DAL. The companys average realization is

expected to decline sharply due to change in the sales mix and the projecteddecline in property prices in FY10.

Chart 7: Revenue and sales booking trend

144

100

6679 89

21.8

12.4

15.4 15.212.4

0

20

40

60

80

100

120

140

160


R e v e n u e

( R s .

B n )

0

5

10

15

20

25

S a l e s

b o o

k e d ( m s f

)

Revenue Sales booked (msf)


Table 8: Sales volume forecasts

Sales booked (mn sq ft) FY08 FY09 FY10E FY11E FY12E

Residential 10.0 6.3 8.8 11.6 11.3

Retail 3.1 1.3 1.6 1.8 1.9

Office 8.7 4.8 2.0 2.0 2.0

Total 21.8 12.4 12.4 15.4 15.2Source: Company, CRISIL Equities Estimate

Margins to decline but remain healthy even during cyclicaldownturn

We expect DLFs margins and earnings to drop because of the shift in sales mixtowards low margin residential segment and decline in realisations due to the

cyclical downturn in the sector. However, the company would be able to command ahealthy margin even during the downturn due to its low-cost land bank(approximately Rs 445 per sq ft). We believe the company will be able to sustain itsoperating margins at around 45% in the medium term.

DLFs sales booking to decline, primarily due to reduction involumes of office sales to DAL

DLFs low cost land bank would enable the company to sustainhealthy margins


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CRISIL Equities

DLF Ltd

10

Chart 8: Operating Margin

67

56

43 4446

0

10

20

30

40

50

60

70

80


O p e r a

t i n g

M a r g i n

( % )

Operating margin

Source: CRISIL Equities Estimate

DLFs earnings are expected to decline 58% (YoY) to Rs 18.6 Bn in FY10, due towaning revenue and margins. The earnings are very sensitive to changes inaverage realisation. We have assumed a fall of 15% in average realisation in FY10.The table below describe the sensitivity of our earning estimates to changes inrealisation.

Table 9: Earning sensitivity to changes in realisation (FY10)

Assumed dip in realisation -20% -15% -10% -5% 0%

Net profit (Rs. Bn) 16 19 23 28 32

EPS 9.6 10.9 13.7 16.4 19.1


...but profitability is expected to dipsignificantly


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CRISIL Equities

DLF Ltd

11

Management and Corporate Governance

CRISILs fundamental grading methodology includes a broad assessment of

corporate governance and management quality, apart from other key factors suchas industry and business prospects, and financial performance. In this context,CRISIL Research analyses shareholding structure, board composition, typical boardprocesses, disclosure standards and related-party transactions. Any qualificationsby regulators or auditors also serve as useful inputs while assessing a companyscorporate governance.

ManagementDLFs management, led by Mr. K P Singh, Chairman and Mr. Rajiv Singh ( Vicechairman and son of Mr. KP Singh), bring to the table sound business and technicalleadership, as well as long years of relevant experience.. The managements soundtrack record is reflected in the portfolio of projects executed by the management andthe low cost land bank that the company has built up over the years. Themanagement of DLF has been credited with the development of Gurgaon region.

Corporate GovernanceThe DLF board consists of 12 directors, of which 6 are non-executive independentdirectors. As the chairman of the DLF board is an executive director, by having 50percent of the directors as independent directors, the company meets the regulatoryrequirement.

CRISIL Equities assesses the companys disclosure levels, based on balance sheetdisclosures, web site information etc as average, which leaves scope for further strengthening. However, the company level of disclosure with respective to itsfinancial performance, land resources and operations are better as compared withits peers. The transaction related to DAL, a promoter group controlled company, canbe a potential area of conflict.


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Valuation Grade:2/5

We expect the company to post earnings per share (EPS) of Rs 10.9 and Rs 14.3 inFY10 and FY11, respectively. Based on the Sum of the Parts (SOTP) valuation wearrive at price objective of Rs 356 for the DLF stock. Consequently, we initiatecoverage on DLF with a Valuation Grade of 2/5. This grade indicates that thecurrent market price of the stock has a Downside to our fair value assessmentbased on Sum of the Parts (SOTP) approach.

The key components to our valuation are:i) Discounted value of estimated free cash flow from the projects under constructionfrom FY10 to FY12ii) Lease portfolio as of FY12 (estimated at 19 mn sq ft) has been valued at 10%capitalisation basis.iii) The remaining land resources of 375 mn sq ft as of FY12 have been valued at Rs1200 per sq ft which we believe is reasonable given some portion of agriculturalland and the associated title risk.

Our valuation is sensitive to changes in the land value and lease cap rate; the samehas been explained in the table below.

Table 10: Valuation sensitivity to changes in land value and lease cap rate

Land value ( Rs/sf)Value / share

800 1,000 1,200 1,400 1,600

8% 284 329 373 417 461

9% 275 319 363 408 452

10% 267 311 356 400 444

11% 261 305 349 394 438 L e a s e c a p r a

t e

12% 256 300 344 388 433


Table 11: Peers - Valuation IndicatorsMarket Cap. Net Profit (Rs. Mn) EPS (Rs) Price/Earnings(x) Price/Book(x)

Companies( Rs. Mn) FY09 FY10 FY11 FY09 FY10 FY11 FY09 FY10 FY11 FY09 FY10 FY11

DLF 727,758 44,696 18,570 24,325 26.2 10.9 14.3 16.3 39.2 29.9 3.2 3.0 2.8

(CRISIL Equities Estimates)

Consensus Estimates

DLF 727,758 44,696 18,465 22,101 26.2 11.0 13.0 16.3 39.4 32.9 3.1 2.8 2.7

Unitech Ltd 267,499 10,223 8,665 10,421 6.2 4.3 5.0 18.0 26.0 22.5 3.8 2.9 2.6

Parsvnath Developers 22,644 1,126 1,132 1,210 6.1 6.0 6.6 20.0 20.6 18.7 1.1 1.1 1.0

Sobha Developers 19,687 1,377 774 1,031 17.5 10.3 14.0 15.5 26.3 19.3 1.8 1.7 1.6

Source: Bloomberg

Valuation is sensitive to changes inland value


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Company Overview

DLF, Indias largest real estate company in terms of revenues, earnings, market

capitalization and developable area, has been in the real estate business since1946. The company has developed some of the first residential colonies in Delhisuch as Krishna Nagar in East Delhi, South Extension, Greater Kailash, KailashColony and Hauz Khas.

Following the passing of the Delhi Development Act in 1957, the state assumedcontrol of real estate development activities in Delhi, which resulted in restrictions onprivate real estate colony development. Subsequently, DLF acquired land atrelatively low costs outside the area controlled by the DDA, particularly in Gurgaon,leading to the development of its landmark project - DLF City. DLF City is spreadover 3,000 acres in Gurgaon and is an integrated township which includesresidential and commercial properties in a modern city infrastructure, with schools,hospitals, hotels, shopping malls and a leading golf and country club.

As on March 31, 2009, the company stated its land resource at 425 mn sq ft, withmajority of its land at NCR, Kolkata, Bangalore and Chennai

DLFs primary business is development of residential, commercial and retailproperties. Its operations span all aspects of real estate development, from theidentification and acquisition of land, the planning, execution and marketing of projects, to the maintenance and management of completed developments. The

companys line of business can be divided into three main lines - residential, officesand retail.

In the residential business, DLF builds and sells a wide range of properties includingplots, houses, duplexes and apartments. The current environment has led to a shiftin the companys strategy from catering to the premium and luxury segment tobuilding for the mid-income segment.

In the office and retail businesses, the company sells or leases commercial space,with a focus on development of SEZ properties and leasing of shopping malls, whichinclude multiplex cinemas. In the past, DLFs main focus was on the sale of

commercial property, but it is now adopting a build and lease model.

DLF is also venturing into other sectors related to real estate, like hotels, where ithas entered into a joint venture with Hilton, a leading international hotel company,and with Bharat Hotels.

DLF is Indias largest real estate player in India in terms of itsrevenues, earnings, market capitalisation and developable area

DLF has demonstrated a tradition of innovation in the Indian real estatemarket and is credited with growthof Gurgaon


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Business Overview

DLFs primary business can be divided into residential, offices and retail. Thecompany has developed approximately 240 mn sq ft, inclusive of 196 mn sq ft of plots, and proposes to launch 425 mn sq ft over the next 15 years.

Table 12: DLF Development plans

Business line Completed developmentas on FY09

Development Potentialas on March09

Plots 196

Residential (Incl. Plots ) 217 290Office 18 68

Retail 5 54

Hospitality 13

Total 240 425

Source: Company

Chart 9: Business Overview

DLF (Primary Business)

Offices RetailResidential

Build and Sell- Higher dependance on market conditions ( launch

and pricing)- Asset light business model- Adopted percentage of completion method of

accounting

Build and Lease- Ensure stable cash flows- Upfront capital requirement- Increase in Fixed assets and depreciation

High Margin segment- Offices: Sale of IT/ITES, IT

SEZ office space -

- Retail: Sale of shopingcenters , retail malls andstores

- Residential: Super Luxury / Luxury apartments

Low Margin segment- Residential: Sale of homesin Mid Income category and

Plots.

Offices- IT/ITES, IT SEZ and NonSEZ office space and building

Retail- Luxury and Super luxury

retail malls , shoppingcenters

and stores

Source: CRISIL Equities


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Residential business

DLF ventured into residential business with the Krishna Nagar project located inDelhi, which was completed in 1949. Though majority of its residential projects areconcentrated in Gurgaon, in the last couple of years, the company has expanded itsfootprints across India with projects in Kolkata, Chennai, Indore etc. To date, DLFhas developed approximately 217 mn sq ft, comprising residential colonies andtownships, including 196 mn sq ft of plots. As on March 31, 2009, the residentialbusiness accounted for 68% (290 mn sq ft) of DLFs total land resources, out of which 18 mn sq ft is under construction.

The residential business is divided into three categories: super luxury, luxury, andmid-income, with margins being the highest in first category and lowest in the last.DLF plans its residential projects on creating new suburbs through large-scaledevelopments, as well as developing luxury and super luxury accommodation on arelatively small scale at metros and super metros, such as Delhi, Mumbai, Chennai,Bangalore, and Kolkata.

DLF had been focusing on the luxury and super luxury categories. But now thecompany has aggressive development plans (88% of its residential land resource) inthe mid-income category.

Chart 10: Development potential ( by geography) :Residential

Chart 11: Development potential ( by category) : Residential

Super M etros51%

Tier-II7%

Tier-I17%

Metros25%

Luxury11%

Super Luxury1%

M id Income /Villas / Plots

88 %

Source: Company Source: Company

Office business

DLF has developed 17 mn sq ft of office spaces till date, and follows an outright saleor lease model for its commercial and retail properties. Under the outright salearrangement, the company develops the property and sells it to a single or multiplebuyers; while under the lease model, the property is leased out to tenants, who paylease rental per month. Normally, the lease agreements are for three years, with anescalation clause of 15% after every three years.

DLFs office business development includes large IT/ITES facilities, including ITSEZ properties, multi-tenant corporate office buildings, built to suit properties andintegrated commercial complexes. The company has dominant presence in NCRand has planned aggressive launches in metros and super metros.

The residential business accountsfor ~ 68% of DLFs total land resources.

Office business accounts for around 16% of DLFs total land reserves


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As on March 31, 2009 the office business accounted for 16% (67 mn sq ft) of DLFstotal land resources; of which around 15 mn sq ft is under construction. Thecompany suspended around 20 mn sq ft of its office projects towards the secondhalf of FY09, due to lack of project financing and delay in projects for DAL

Chart 12: Development potential (by geography): Office

Super M etros78%

Tier-II3%

Tier-I1%Metros

18%

Source: Company

Retail Business

DLF established its retail business in 1940s and has completed the development of 5 mn sq ft of retail space, primarily in DLF city, Gurgaon. As in the case of offices,DLF has adopted a mix of sale and lease with plans to expand its lease portfolio. Ason March 31, 2009, the retail business accounted for 13% (55 mn sq ft) of the

companys total land resources, out of which 4.5 mn sq ft is under construction,catering to middle and high end segments.

DLFs malls are characterised by high quality infrastructure as well as leisure andentertainment options such as multiplex cinemas, food courts and restaurants. Thecompany ventured into the multiplex business in 1999 to realize the synergy with itsmall development business through its subsidiary, DT Cinemas. DT Cinemascurrently operates a total of six multiplex cinemas with 26 screens, at Gurgaon, NewDelhi and Chandigarh

DLF has entered into strategic tie-ups with renowned corporate houses such as

Trent and Metro Cash & Carry to help them further expand. Through its subsidiary,DLF Brands, the company has also partnered with premium and luxury lifestylebrands such as Armani, Boogi etc to bring these brands to its malls in India. Theseventures will help DLF earn premium lease rentals as well as share revenues withthe tenants in some cases.

Retail business accounts for ~ 13%of the DLFs total land resources

DLF Emporia, the first luxury mall inIndia, to house premium brandssuch as Armani, Dior, Louis Vuittonetc


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Chart 13: Development potential (by geography): Retail

Metros13%

Tier-I9%

Tier-II16%

Super Metro s62 %

Source: Company

DLF forming various alliances to diversify its product mix

DLF has entered into various alliances, to enhance its design and constructioncapabilities, and explore various opportunities in related businesses, such asinfrastructure and SEZ development and hotels. The company is also foraying intonew business areas in airport development and management and insurance andasset management. While the new ventures are critical for product and marketdiversification, we believe that it is too early to factor in the benefits. However, thecompany stands to benefit from these ventures in the long term.

Table 13: Major JVs and other arrangement made by DLF to diversify its product mix

Company Purpose and nature of agreement Product/Technology Synergies

Laing O' Rourke Plc ( A leading UKbased construction company) To engage in Infrastructure development andleverage on Laing O' Rourke constructionexpertise on various infrastructure projects

The JV agreement enables DLF to cut downconstruction time of its projects and also explorebusiness opportunities to participate ininfrastructure projects such as roads, railwaytracks, airport terminals, port etc.

Hilton , a leading hospitality company To set up chain of hotels and serviced apartmentsin India

Plans to set up chain of hotels in India

Prudential International InvestmentsCorp

To establish an asset management joint venturecompany in India with a focus on Indian capitalmarkets

Prudential Insurance To promote market and sell life Insurance productsin India

Exploring new businesses

Source: Company, CRISIL Equities

Special Economic ZoneSpecial Economic Zones (SEZ), a new business concept introduced in 2005,provides attractive incentives for both developers and tenants. It has received in-principle approval for a multi-product SEZ in Ludhiana, covering 2,500 acres, and atAmritsar, covering 1,087 acres. DLF has also received approvals from the HaryanaInvestment Promotion Board for setting up two SEZs in Gurgaon and Ambalacovering an area of 20,000 acres and 3,000 acres, respectively.Due to the global economic turmoil and cyclical downturn in real estate sector,developers are planning to delay their SEZ plans by either seeking de-notification of SEZs or looking for buyers for their projects. DLF has de-notified 5 IT/ITES SEZs

and the plans for multi-product SEZs have been put on hold for the time being.Thus, we do not expect SEZs to yield any material benefits in the medium term.

New ventures are critical for diversification, but it is too early tofactor in the benefits


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Hotels

DLF is also foraying into other real estate-related segments like hotels, where it hasentered into joint ventures with Hilton and with Bharat Hotels. In 2007, DLF acquireda controlling stake in Singapore-based Aman Resorts, which owns and operates 22luxury hotels in 12 countries. Aman Lodhi, a super luxury hotel in Delhi is alreadyoperational. Hilton Garden Inn, also located in Delhi, is scheduled to open in FY10.In light of the prevailing market conditions, DLF has announced suspension of thehotel projects due to unavailability of project finance.

Property management services

DLF provides management and maintenance servicessuch as power backup anddistribution, water supply, infrastructure maintenance etcof its properties inresidential, commercial, and retail business through its subsidiary, DLF Services.The company has outsourced most services to vendors experienced at them and

who can meet international quality standards. The pricing in such maintenanceservice contracts are normally cost plus 1520%.

DLF Power

Through its subsidiary, DLF Power, the company operates five power plants inEastern India. The captive power reserves would enable DLF to derive competitiveadvantage in the development of large townships and infrastructure projects.


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Chart 14: Planned supply across cities: 2008-2010(895 mn sq ft)

Chart 15: Absorption across cities: 2008-10(614 mn sq ft)

(per cent)

Kolkata8

Kochi4

Mumbai20

NCR33Chennai

6

Bengaluru10

Pune9

Hyderabad10

(per cent)

NCR30

Hyderabad9

Pune11

Bengaluru10

Chennai7

Kolkata8

Kochi4Mumbai

21

Source: CRISIL Research Estimates Source: CRISIL Research Estimates

Commercial Real Estate

The last few years have been encouraging for the commercial office space marketin India. Demand from the IT/ITeS sectors has transformed Indias urban landscape.Currently, these sectors jointly account for 80% of all commercial office space. Butconsequently, the office space market across cities has been affected as thesesectors have postponed their expansion plans due to the overall slowdown indomestic as well as global economy.

Lease rentals up 30% annually over the last three years

Lease rentals across cities have increased by 30% annually over the last threeyears. During 20052007, lease rentals registered 75% average annual increase inthe top five micro-markets. Further, in this period, no micro-market saw stable or declining lease rentals.

However, excess supply during 2008-2010 likely to lead to 15%more decline in lease rentals

From 20082010, CRISIL Research expects an absorption of 196.6 mn sq ft acrossthe eight cities, as against the planned supply of 704 mn sq ft, indicating an excesssupply of 72%. Considering the credit crunch, shortage of skilled labor, and sluggish

demand, likely to cause a delay in the planned supply, CRISIL Research forecastsactual supply of around 300 mn sq ft. Even then, there would be a 34% additionalsupply. CRISIL Research expects lease rentals to fall by 10-15% across cities from20082010, due to the huge supply planned.


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Table 13: Commercial real estate

Movement of lease rentals: 2005 to 2007 Outlook on lease rentals: 2008-2010Highest increase in lease rentals Highest expected fall in lease rentals

Regions City Includes areas CAGR: Regions as per City Includes areasas per 2005-07 CRISIL ResearchCRISIL Research

Delhi NCR In and around Okhla 94% Gurgaon NCR GurgaonIndustrial Estate

Gurgaon NCR Gurgaon 86% Navi Mumbai Mumbai Airoli, Rabale,Electronicsadan, Panvel& Khargar

Noida NCR Noida 81% Peripheral Hyderabad Hi-tech city, Madhapur,Gachibowli

Central Mumbai Mumbai Elphinstone, lower parel 70% Peripheral Business Chennai OMR(R J Salai), GST

& Prabhadevi District Road, Sriperumbudur

Around Kochi Kakkanad,Kalamserry 41%In and aroundWhitefield Bengaluru KR Puram,

Kakkanad Mahadevapura,Krishnarajapuram, Hudi,Old Madras Road

Salt Lake Kolkata Salt LakeSource: CRISIL Research Estimates

Retail Real Estate

The organized retail market in India is expected to grow at a CAGR of 28% from Rs.679 Bn in 20062007 to Rs.2,366 Bn by 20112012. A good opportunity, coupledwith relatively low penetration (currently at nearly 5%), has prompted severaldomestic industrial houses as well as global majors to start retail operations in India.

With the entry of numerous players, the demand for quality retail space has far outpaced the supplyleading to soaring real estate prices and thereby increasedrentals. Lease rentals in metros have grown at a CAGR of 2050% across major India cities during 20052007. In certain areas of Mumbai, rentals have increased ata CAGR of 26% in the last two years.

Chart 16: NCR - Retail lease rentals Chart 17: Mumbai - Retail lease rentals

75%

27%

43%

56%

33%

59%

36%

-

200

400

600

800

1,000

C o n n a u g

h t

P l a c e

R a

j o u r

i

g a r

d e n

G u r g a o n

N o i

d a

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i d a

b a d

G h a z

i a b a d

G r e a t e r

N o

i d a

R s .

p e r s q

f e e t p m .

0%

20%

40%

60%

80%

100%

C A G R ( 2 0 0 5 - 2 0 0 7 )

31%29%

24%20%

25%

0

100

200

300

400

500

600

L i n k i n g

R o a d

L o w e r

P a r e

l

L o k h a n

d w a l a

M u l u n d

M a

l a d

R s .

p e r s q

f e e t p m .

0%

7%

14%

21%

28%

35%

42%

C A G R ( 2 0 0 5 - 2 0 0 7 )



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Chart 18: Bangalore - Retail lease rentals Chart 19: Kolkata - Retail lease rentals

22%

42%

28%23%

38%35%

0

50

100

150

200

250

300

350

400

B r i g a

d e

R d .

C o m m e r c i a l

S t .

M . G

R d .

J a y a n a g a r

I n d i r a n a g a r

M a l

l e s h w a r a m

R s .

p e r s q

f e e

t p m .

0%

7%

14%

21%

28%

35%

42%

49%

C A G R ( 2 0 0 5 -

2 0 0 7 )

14%18%

40%

47%49%

0

60

120

180

240

300

360

P a r k

S t r e e

t

C a m a c

S t r e e

t

E M B y p a s s

S a

l t L a k e

R a

j a r h a

t

R s .

p e r s q

f e e

t p m .

0%

10%

20%

30%

40%

50%

60%

Y O Y 2 0 0 6 - 0

7


Note: Lease rentals shown above are applicable to vanilla retailers in malls. Anchor tenants, who tie

up for large mall space, pay rentals 3040% lower than vanilla retailers. The figures considered

above are for calendar years.

Rising mall rentals in the last two to three years have led to numerous developersentering into sector. Also, changes in the regulatory environment, such as allowing100% FDI in construction and rising investments by private equity players in realestate companies and projects, are fuelling the increase in supply of mall space.From 20082010, CRISIL Research expects 48 mn sq ft added retail space in thefour major metros, with 20 mn sq ft in Mumbai alone. The increased supply of mallspace is expected to pull down retail rentals in most metros and Tier-I cities in thenear future.

Chart 20: Upcoming mall space

10.0 12.2

2.05.23.4

11.115.4

20.0

0

10

20

30

40

50

Upto 2007 (Existing) 2008-10 (Upcoming)

m n s q

f t . t

NCR Kolkata Bengalaru Mumbai

Source: CRISIL Research Estimates


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Rentals to expected to further correct by 1015%

High rentals, currently charged in malls, are not sustainable in the short to mediumterm. Over the next two years, CRISIL Research expects rentals to fall by 1015%

annually in major cities, driven by demand as well as supply factors:

On the demand side, CRISIL Research believes that retailers will pay rentals basedon the revenue-earning potential in each vertical. If current rentals persist, businesscompulsions will force existing retailers to exit from malls in some cases and halttheir expansion plans.

On the supply side, large supply of mall space (48 mn sq ft in Indias four major cities expected to come up in the next two to three years) would pressurize rentals.However, the liquidity crunch currently faced by the developers can pose significantexecution risks and delay the project completion. In such a scenario, we believe thatthe fall in lease rentals would be 78% annually.

Retailers and mall developers may adopt rental model, based onrevenue share

With large retail space coming up in large cities in India, and low profitability for retailers, CRISIL Research expects retailers and mall developers to shift to a rentalmodel based on revenue share or a minimum guarantee (whichever is higher). Thiswill ensure that retailers pay rentals based on the revenue they generate, whileallowing the mall developers to participate in any potential upside a retailer maybenefit due to the attractiveness of the location and cap the downside risk by

ensuring minimum guarantee payments. Based on discussions with retailers andmall developers, in this model, we expect small store operators to have rentals of 810% of their operating income, while for anchor tenants it could be 56%.


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Annexure: Financials

Income Statement

(Rs. Mn) FY07 FY08 FY09 FY10E FY11E FY12EOperating Income 26,374 144,375 100,354 66,061 79,293 89,063

Operating profit 14,897 97,151 55,900 28,203 34,539 40,559

Depreciation 578 901 2,390 3,324 3,471 3,913

Interest 3,076 3,100 5,548 3,077 1,545 888

Other Income 14,159 2,464 3,960 3,109 3,109 3,109

PBT 25,402 95,614 51,922 24,912 32,632 38,867

PAT 19,336 78,120 44,696 18,570 24,325 28,973

Balance Sheet

(Rs. Mn) FY07 FY08 FY09 FY10E FY11E FY12E

Equity (Including reserves) 26,051 187,387 227,578 242,465 263,106 288,395

Preference Share Capital 9,498 9,496 13,960 9,385 9,385 9,385

Debt 99,327 122,771 163,201 90,291 50,291 20,291

Deferred Tax Liability/(Asset) 197 359 (414) (414) (414) (414)

Minority Interest 92 3,895 6,336 6,450 6,599 6,777

Capital Employed 135,165 323,907 410,662 348,177 328,968 324,435

Goodwill 8,935 20,931 22,651 22,651 22,651 22,651

Net Fixed Assets 15,632 48,191 79,124 72,973 78,152 83,261

Capital WIP 26,219 51,840 56,882 55,592 58,003 60,681

Investments 2,107 9,102 14,025 14,025 14,025 14,025

Loans and advances 52,258 73,686 97,120 67,120 67,120 67,120Inventory 56,799 94,544 109,282 103,497 96,416 89,423

Working capital ( Excl. cash .advances and Inventory) (30,941) 4,192 19,622 (3,020) (27,054) (37,722)

Cash & Bank Balance 4,155 21,421 11,956 15,340 19,654 24,996

Applications of Funds 135,165 323,907 410,662 348,177 328,968 324,435

Ratios

FY07 FY08 FY09 FY10E FY11E FY12E

Sales growth (%) n.a. 447.4 (30.5) (34.2) 20.0 12.3

Operating profit growth (%) n.a. 552.1 (42.5) (49.5) 22.5 17.4

EPS growth (%) n.a. 267.8 (44.1) (58.3) 31.0 19.1

Operating profit Margin (%) 56.5 67.3 55.7 42.7 43.6 45.5PAT Margin (%) 47.7 53.2 42.8 26.8 29.5 31.4

Return on Capital Employed (RoCE) (%) 21.1 43.4 15.9 7.5 10.3 12.4

Return on Equity (RoE) (%) 54.4 67.2 20.4 7.5 9.3 10.2

Earnings Per Share (Rs) 12.8 46.9 26.2 10.9 14.3 17.1

Book Value Per Share (Rs) 17 112 134 143 155 170

Debt-Equity 2.8 0.6 0.7 0.4 0.2 0.1

Current Ratio 2.8 3.7 4.0 3.4 2.6 2.3

Interest Coverage 4.7 31.0 9.6 8.1 20.1 41.3

Price to Earnings (x) 33.6 9.1 16.3 39.2 29.9 25.1

Price to Book (x) 25.2 3.8 3.2 3.0 2.8 2.5

EV/EBITDA (x) 26.2 8.5 14.9 28.6 23.8 20.5

Source: Company, CRISIL Equities EstimateNote: RoE and RoCE is calculated on average equity and capital employed respectively from FY08 onwards.


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Explanation of CRISIL Fundamental and Valuation (CFV) matrix

The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two importantanalysis of an investment making process Analysis of Fundamentals (addressed throughFundamental Grade) and Analysis of Returns (Valuation Grade)

Fundamental GradeCRISILs Fundamental Grade represents an overall assessment of the fundamentals of the companygraded in relation to other listed equity securities in India. The grade facilitates easy comparison of fundamentals between companies, irrespective of the size or the industry they operate in. The gradingfactors in the following:

Business Prospects: Business prospects factors in Industry prospects and companys futurefinancial performance

Management Evaluation : Factors such as track record of the management, strategy are takeninto consideration

Corporate Governance : Assessment of adequacy of corporate governance structure anddisclosure norms

The grade is assigned on a five-point scale from grade 5 (indicating Excellent fundamentals) to grade1 (Poor fundamentals)

CRISIL Fundamental Grade Assessment5/5 Excellent fundamentals4/5 Superior fundamentals3/5 Good fundamentals

2/5 Moderate fundamentals1/5 Poor fundamentals

Valuation GradeCRISILs Valuation Grade represents an assessment of the potential value in the company stock for an equity investor over a 12 month period. The grade is assigned on a five-point scale from grade 5(indicating strong upside from the current market price (CMP)) to grade 1 (strong downside from theCMP).

CRISIL Valuation Grade Assessment

5/5 Strong upside (>25% from CMP)4/5 Upside (10-25% from CMP)3/5 Align (+-10% from CMP)2/5 Downside (negative 10-25% from CMP)1/5 Strong downside (


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About CRISIL LimitedCRISIL is India's leading Ratings, Research, Risk and Policy Advisory Company

About CRISIL Research

CRISIL Research is India's largest independent, integrated research house. We leverage our unique,integrated research platform and capabilities spanning the entire economy-industry-company spectrumto deliver superior perspectives and insights to over 600 domestic and global clients, through a range ofsubscription products and customised solutions.

Mumbai

1061, Solitaire Corporate Park, Andheri-Ghatkopar Link Road, Andheri (East), Mumbai - 400 093Phone: +91 (22) 6758 8000Fax: +91 (22) 6758 8088

Bangalore

W-101, 1st floor, Sunrise Chambers, 22,Ulsoor Road,Bangalore - 560 042Phone: +91 (80) 2558 0899/ 2559 4802Fax: +91 (80) 2559 4801

Chennai

Thapar House,43/ 44, Montieth Road,Egmore, Chennai 600 008Phone: +91 (44) 2854 6205/ 06Fax: +91 (44) 2854 7531

Kolkata

Horizon, Block-B, 57,Chowringhee Road,Kolkata - 700 071Phone: +91 (33) 2289 1949/ 2289 1950Fax: + 91 (33) 2283 0597

New Delhi

The Mira,G-1, 1st Floor, Plot No. 1 & 2Ishwar Nagar, Near Okhla CrossingNew Delhi - 110 065Phone: +91 (11) 4250 5100Fax: +91 (11) 2684 2212/ 13

For further detailsor more information, please contact:

Client ServicingCRISIL Research

261/262, Solitaire Corporate Park Andheri-Kurla Road, Andheri (E)

Mumbai - 400 093, India

Phone: +91 (22) 6691 3561/ 62Fax: +91 (22) 6702 6954E-mail: [email protected]/

Documents

CRISIL Research Ier Report Dlf