Money Tree

DLF Ltd. has come out with an IPO to open for subscription from 11th June 2007.

The salient features and extracts from the Red Herring Prospectus of the issue are given hereunder:

Issue Opens On : June 11, 2007
Issue Closes On : June 14, 2007
Issue Size : 17,50,00,000 Equity Shares
Face Value : Rs.2/-
Price Range : Rs. 500 to Rs. 550/-
Issue Type : Book Building
Tick Size : Re.1/-
Market Lot : 10
Minimum Order Qty : 10
Listing Stock Exchange : BSE, NSE

Objects Of the Issue :

Acquisition of land and development rights
Development and construction costs for existing projects of the company
Prepayment of loans of the Company

Basis for Issue Price :

Face Value : Rs.2/-
Issue Price : 250 Times(Lower Price Band) of the Face Value.
Issue Price : 275 Times(Higher Price Band) of the Face Value.
Issue Price : Rs. 500 to Rs. 550
EPS for the last financial year 2006-07 : Rs.12.80
EPS for the last year (2005-2006) : Rs.12.34 (adjusted for split)
Weighted Average EPS for the years 2005-2007 : Rs.11.54

Industry PE ratio:
PE ratio of peer group (as on 27.04.07)

Unitech : 53.8
Ansal Properties : 31.6
Mahindra Gesco : 174
D S Kulkarni : 14.5
Average industry PE ratio : 57.5

PE ratio of DLF Ltd. on the higher side of price band comes out to 47.7 times and on the lower side of the price band comes out to 43.3 times on the basis of EPS for the year ended on 31st march 2007.

Business Overview :
DLF is the largest real estate development company in India in terms of the area of its completed residential and commercial developments and its primary business is the development of residential, commercial and retail properties. DLF’s operations span all aspects of real estate development, from the identification and acquisition of land, the planning, execution and marketing of our projects, through to the maintenance and management
of its completed developments. In the residential business line, the company builds and sells a wide range of properties including plots, houses, duplexes and apartments of varying sizes, with a focus on the higher end of the market. In its commercial business line, the company builds and sells or leases commercial office space, with a focus on properties attractive to large multinational tenants. The company’s retail business line develops, manages and mainly leases shopping malls, which in many cases include multiplex cinemas. DLF is also expanding its business by entering into the infrastructure, SEZ and hotel businesses.

History :
The predecessors of the promotors of the company have been steadily building real estate business since 1946. They developed some of the first residential colonies in Delhi such as Krishna Nagar in East Delhi, which was completed in 1949. Since then they have been responsible for the development of many of Delhi’s other well known urban colonies, including South Extension, Greater Kailash, Kailash Colony and Hauz Khas. Following the passage of the Delhi Development Act in 1957, the state assumed control of real estate development activities in Delhi, which resulted in restrictions on private real estate colony development. The company then commenced acquiring land at relatively low cost outside the area controlled by the DDA, particularly in the district of Gurgaon in the adjacent state of Haryana. This led to the first development by the company, DLF Qutab Enclave, which has evolved into DLF City, The company’s landmark project. DLF City is spread over 3,000 acres in Gurgaon and is an integrated township which includes residential, commercial and retail properties in a modern city infrastructure with schools, hospitals, hotels, shopping malls and a leading golf and country club. DLF City incorporates Cybercity, the Company’s leading commercial development, which when completed is expected to have developed area of approximately 20 million square feet.

Financial Information :
Total income of the Company for the year ended 31st March, 2007 : Rs. 1429.50 crores
Total income of the Company for the year ended 31st March, 2006 : Rs. 1145.00 crores
Total income of the Company for the year ended 31st March, 2005 : Rs. 479.80 crores

Net profit (after tax) for the year ended 31st March, 2007 : Rs.414.6 crores
Net profit (after Tax) for the year ended 31st March, 2006 : Rs. 96.1 crores
Net profit (after Tax) for the year ended 31st March, 2005 : Rs. 45.9 crores

Comments :
The much awaited and many times postponed issue is finally through and the valuations are also reasonable. As far as valuations are concerned a price of Rs. 550 is justified but a huge premium on listing cannot be expected. Further, the issue is so large that it would not oversubscribe many times and therefore demand would not be very high on listing. The real estate sector is experiencing a downward pressure on prices due to rising interest rates and the profit margins are expected to shrink. Some more downside is expected over the next few months before the real estate stocks will start rallying. Still we expect some premium on listing and the issue can be subscribed if the view is to hold for a long term.