1 August 2014
1QFY15 Results Update | Sector: Real Estate
DLF
BSE SENSEX
25,895
Bloomberg
Equity Shares (m)
M.Cap. (INR b) / (USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
S&P CNX
7,721
DLFU IN
1,781.6
353.5/5.8
243/120
-10/18/-1
CMP: INR198
TP: INR252
Buy
Financials & Valuation (INR m)
Y/E March 2015E
Net Sales
EBITDA
Adj PAT
EPS (INR)
Gr (%)
RoE (%)
RoCE (%)
P/E (x)
P/BV (X)
2016E
2017E
87,309 92,027 107,645
29,445 71,922 87,137
7,241
4.1
12.1
2.0
4.5
48.8
1.2
10,471 18,222
5.9
44.6
169.3
16.2
12.7
33.7
1.2
10.2
74.0
177.3
19.6
15.3
19.4
1.1
BV/Sh (INR) 165.8
P&L beat, margin bounce back; lower interest, tax boosts PAT:
DLF has
reported 1QFY15 EBITDA at INR7.4b (v/s est of INR5.7b) on the back of sharp
uptick in margin to 43% (v/s 35% in FY14). Revenue stood at INR17.3b (-25%
YoY) v/s est of INR19.6b, while PAT stood at INR1.28b (ahead of estimate of
INR1.02b) on the back of lower interest cost (-11% QoQ) and lower tax (21%).
We believe CMBS of ~INR9b with average cost of debt of 10.9% to have partially
benefitted lower interest expense.
Lowest presales continue, leasing momentum positive:
1QFY15 presales
remains lowest ever level of 0.38msf (INR3.1b) v/s 0.44msf (INR3.1b) in 4QFY14.
Luxury projects viz. Kings Court and Camellias contributed ~45% of presales,
while Hyderabad, Indore and Bhubaneswar were other key contributors.
Annuity vertical performed better with 0.71msf of leasing (v/s 0.6msf in 4Q,
1.7msf in FY14). Major leasing happened in Gurgaon, Chennai and Delhi malls.
Annuity income stood at INR5.25b (v/s INR4.95b in 3Q)
Core FCFE negative INR7.7b; net debt up INR5.3b QoQ
:
Sustained weakness in
presales and lack of fresh launch has resulted in deterioration in core operating
cash flow. We calculate core FCFE negative at INR7.7b (post-dividend) v/s
negative INR13.1b in 4Q (-INR25b in FY14). DLF received ~INR2.4b of divestment
proceeds in 1QFY15, resulting into net increase in net debt by INR5.3b to
INR200b (0.7x), unadjusted for JV partners’ stakes.
Guiding deferred recovery cycle:
While concerns over gearing have moderated,
weakness in operations remains overhang. Management has been portraying a
cautious outlook for near-term with restrained strategy and likely torpidity in
cash flows in FY15. However, improving
macro outlook and various positive
developments in policy front should offer big benefits to the stock on leverage
play. The stock trades at 1.2x FY16 BV and 33.7x FY16 EPS. Asset based
valuation keeps us Buy.
We will revisit our estimates post further clarity in
Concall at 4pm on 1
st
August 2014 dial in +91 22 3960 0641 .
Sandipan Pal
(Sandipan.Pal@MotilalOswal.com); +91 22 3982 5436
Investors are advised to refer through disclosures made at the end of the Research Report.

DLF
P&L beat, margin bounce back; lower interest, tax boosts PAT
DLF has reported 1QFY15 EBITDA at INR7.4b (v/s est of INR5.7b) on the back of
sharp uptick in margin to 43% (v/s 35% in FY14). While we await clarity on the
same from management, higher revenue mix from Rent co (lower POCM
booking) could be an attributable reason.
Revenue stood at INR17.3b (-25% YoY) v/s est of INR19.6b, while PAT stood at
INR1.28b (ahead of estimate of INR1.02b) on the back of lower interest cost (-
11% QoQ) and lower tax (21%). We believe CMBS of ~INR9b with average cost
of debt of 10.9% to have partially benefitted lower interest expense.
Lowest presales continue, leasing momentum positive
1QFY15 presales was at 0.38msf (INR3.1b) v/s 0.44msf (INR3.1b) in 4QFY14.
These are the lowest ever quarterly presales run-rate in foreseeable history. No
major new launches and torpidity in Gurgaon market were the key reasons.
Luxury projects viz. Kings Court and Camellias contributed ~45% of presales,
while Hyderabad, Indore and Bhubaneswar were other key contributors.
Management guidance was cautious for next couple of quarters, albeit amidst
incrementally improving outlook. It expects normalcy to revive only in FY16.
Annuity vertical performed better with 0.71msf of leasing (v/s 0.6msf in 4Q,
1.7msf in FY14). Major leasing happened in Gurgaon, Chennai and Delhi malls.
Annuity income stood at INR5.25b (v/s INR4.95b in 3Q) in line with management
guidance for FY15 was at INR21b (at par with est)
Lowest ever quarterly presales continue
Launch (msf)
Sales volume (msf)
EBITDA margin posted sharp bounce back (%)
52
42
50 48
39
48
45 46
25
49
40
30
37
33
7
40
30 30
18
43
Source: Company, MOSL
Source: Company, MOSL
Weak presales trend
Sales value (INR b)
32
24
16
8
0
5
14
20
18
15
19
11
6
Average realization ('000 INR/sf)
16
24
24
12
11
6 6
1313
7 6
3 3
8
4
0
Leasing velocity posted better trend
1313
15
Source: Company, MOSL
1 August 2014
Source: Company, MOSL
2

DLF
Core FCFE negative INR7.7b; net debt up INR5.3b QoQ
Sustained weakness in presales and lack of fresh launch has resulted in
deterioration in core operating cash flow. We calculate core FCFE negative at
INR7.7b (post-dividend) v/s negative INR13.1b in 4Q (-INR25b in FY14).
DLF received ~INR2.4b of divestment proceeds in 1QFY15, leading to net rise in
net debt by INR5.3b to INR200b (0.7x), unadjusted for JV partners’ stakes.
Trend in net debt
Net debt (INR b)
Net DER (x)
Trend in divestments (INR b)
Source: Company, MOSL
Source: Company, MOSL
FCFE remains negative, increasing the gearing once again (INR b)
Core FCFE
22.3
18.7
3.7
0.0
-3.7
1QFY13
5.6
0.0
-5.6
2QFY13
-3.6
3QFY13
0.0
-5.8 -5.8 -7.9
4QFY13
1QFY14
2QFY14
Divestments
20.7
12.8
Net debt reduction
29.5
16.3
6.8
6.6
0.3
2.5
-5.9 -3.4
-13.1
3QFY14 4QFY14
2.4
-7.7 -5.3
1QFY15
Source: Company, MOSL
Valuation and views: Play on improvement in operating leverage
Management has been portraying a cautious outlook over near-term with
expectation of operational normalcy over next 18 months. It believes
governments budgetary steps to benefits the real estate sector in broader way,
albeit the impact is likely to percolate gradually.
On the back of adversity in NCR market and DLF’s strategy to go slow on fresh
launches (to focus more on selling mature inventories), we expect no major
uptick in operational cash flows in FY15 (over FY14).
However with concerns on gearing subsiding coupled with improving macro
outlook and various positive developments in policy front (REIT, CMBS, possible
rate cut), we believe the stock to be biggest beneficiary on leverage play.
We will revisit our estimates post further clarity from management. The stock
trades at 1.2x FY16 BV and 33.7x FY16 EPS. Asset based valuation keeps us Buy
on the stock with target price of INR252, albeit (a) delay in revival of operations,
and (b) unfavorable verdicts on CCI penalty, tax litigations etc remain overhangs.
3
1 August 2014

DLF
DLF: an investment profile
Company description
DLF, one of the largest and most respected real estate
companies in India, has developed many well known
urban colonies in Gurgaon, Delhi including South
Extension, Greater Kailash, Kailash Colony and Hauz
Khas. Since inception, DLF has developed ~230msf,
including 22 urban colonies and an integrated 3,000-
acre township in Gurgaon, called DLF City.
Recent developments
Placed India's first Commercial Mortgage Backed
Security (CMBS) issuance of INR5.25b, with a
coupon rate of 10.90% p.a. and legal Maturity of
7.5 years, against DLF Emporio mall (0.3msf) in
New Delhi.
Valuation and view
Key investment arguments
DLF is a major beneficiary of recent policy reforms
and favorable macro trends.
Expect meaningful improvement in operating cash
deficit (break-even by FY14) on the back of (1)
realigning core operations to premium business
mix, (2) focus on margin protection, and (3)
execution ramp-up.
Success in large divestments implies higher
potential to de-leverage, making DLF a strong play
on rate downcycle.
Key investment risks
Monetization of high super luxury projects in
Gurgaon at desired pace.
Negative development on ITA claims, CCI penalty
and subdued incremental leasing at commercial
vertical.
DLF
Prestige
21.1
14.7
2.5
2.2
3.6
3.0
12.5
9.5
Oberoi
20.3
9.7
1.4
1.3
7.6
3.6
13.9
6.0
On the back of adversity in NCR market and DLF’s
strategy to go slow on fresh launches (to focus
more on selling mature inventories), we expect no
major uptick in operational cash flows in FY15 (over
FY14).
However with concerns on gearing subsiding
coupled with improving macro outlook and various
positive developments in policy front (REIT, CMBS,
possible rate cut), we believe the stock to be
biggest beneficiary on leverage play.
We will revisit our estimates post further clarity
from management. The stock trades at 1.2x FY16 BV
and 33.7x FY16 EPS. Asset based valuation keeps us
Buy on the stock with target price of INR252, albeit
(a) delay in revival of operations, and (b)
unfavorable verdicts on CCI penalty, tax litigations
etc remain overhangs.
.
MOSL
Forecast
Consensus
Forecast
5.4
8.0
Variation
(%)
-24.4
-26.4
Comparative valuations
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
FY15E
FY16E
FY15E
FY16E
FY15E
FY16E
FY15E
FY16E
48.8
33.7
1.2
1.2
6.2
5.9
17.7
16.0
EPS: MOSL forecast v/s consensus (INR)
FY15
FY16
4.1
5.9
Target price and recommendation
Current
Price (INR)
198
Target
Price (INR)
252
Upside
(%)
27.3
Reco
Buy
Shareholding pattern (%)
Jun-14
Promoter
DII
FII
Others
74.9
0.5
19.9
4.7
Mar-14
74.9
0.4
19.9
4.8
Jun-13
75.0
0.5
19.7
4.8
Stock performance (1-year)
Notes: FII includes depository receipts
1 August 2014
4

DLF
Financials and valuation
Income statement
Y/E March
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Reported PAT
Adjusted PAT
Change (%)
Min. Int. & Assoc. Share
Adj Cons PAT
2014
82,980
6.8
24,852
29.9
6,629
18,223
24,633
14,916
0
8,506
-836
-9.8
9,342
6,462
-9.2
418
6,462
2015E
87,309
5.2
29,445
33.7
6,075
23,371
22,104
7,000
0
8,266
2,367
28.6
5,900
7,241
12.1
141
7,241
(INR Million)
2016E
2017E
92,027 107,645
5.4
17.0
71,922 87,137
78.2
80.9
6,599
6,731
65,323 80,407
21,159 20,604
8,000
8,000
0
0
52,164 67,803
3,978
7,344
7.6
10.8
48,186 60,459
10,471 18,222
44.6
74.0
241
242
10,471 18,222
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Cash P/E
Price / Book Value
EV/Sales
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios (%)
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Leverage Ratios (%)
Net Debt/Equity (x)
2014
3.6
7.4
164.0
2.0
64.4
54.6
27.0
1.2
6.8
22.8
1.0
3.3
3.5
0.2
70.9
813.2
0.0
0.8
2015E
4.1
7.5
165.8
2.0
57.5
48.8
26.5
1.2
6.5
19.3
1.0
2.0
4.5
0.2
72.0
810.0
0.0
0.7
2016E
5.9
9.6
169.3
2.0
39.8
33.7
20.7
1.2
6.2
7.9
1.0
16.2
12.7
0.2
72.0
785.0
0.0
0.7
2017E
10.2
14.0
177.3
2.0
22.3
19.4
14.2
1.1
5.2
6.5
1.0
19.6
15.3
0.2
71.0
704.0
0.0
0.7
Balance sheet
Y/E March
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets
2014
3,559
270,386
291,939
223,340
-10,178
517,302
193,955
38,319
155,636
80,943
8,912
377,801
184,886
16,123
24,420
152,371
127,722
121,904
5,818
250,079
517,302
2015E
3,559
273,462
295,016
216,550
0
513,589
197,955
44,393
153,561
86,943
8,912
382,678
193,754
17,223
13,827
157,874
140,651
133,954
6,698
242,026
513,589
(INR Million)
2016E
2017E
3,559
3,559
279,769 293,933
301,322 315,486
215,260 213,983
0
0
518,605 531,492
201,955 205,955
50,992 57,723
150,963 148,232
92,943 96,943
8,912
8,912
388,867 422,771
197,921 207,621
18,153 20,939
11,431 18,735
161,362 175,475
145,226 167,513
138,671 160,730
6,555
6,783
243,641 255,258
518,605 531,492
E: MOSL Estimates
Cash flow statement
Y/E March
OP/(Loss) before Tax
Depreciation
Others
Interest
Direct Taxes Paid
(Inc)/Dec in Wkg Cap
CF from Op. Activity
(Inc)/Dec in FA & CWIP
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax)
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
2014
5,207
6,629
0
24,633
-836
-13,520
22,245
18,414
4,425
0
22,839
14,363
-24,673
24,633
4,165
-39,107
5,977
18,443
24,420
2015E
9,466
6,075
0
22,104
2,367
-2,541
32,879
-10,414
0
0
-10,414
0
-6,790
22,104
4,165
-33,059
-10,594
24,420
13,826
(INR Million)
2016E
14,208
6,599
0
21,159
3,978
-4,011
34,217
-10,000
0
0
-10,000
0
-1,290
21,159
4,165
-26,613
-2,396
13,827
11,431
2017E
25,323
6,731
0
20,604
7,344
-4,313
41,242
-8,000
0
0
-8,000
0
-1,277
20,604
4,058
-25,939
7,304
11,431
18,735
1 August 2014
5

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DLF
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DLF
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6