DLF
 Aprominent player in the National Capital Region (NCR), DLF is the largest listed realty company in India. Besides being present in homes, offices and shopping mall segments, it has added hotels, infrastructure and special economic zones (SEZs) divisions to its portfolio.

Business: With land reserves of over 16,000 acres spread across 32 cities, the company has delivered 224 million sq feet of completed development since 1949. While residential projects contribute around 65% to its revenue, retail and commercial projects account for the remaining 35%.

After dominating the luxury housing market, the company has now shifted its focus to mid-income housing projects. DLF plans to shift the focus of its product portfolio from residential to commercial and retail projects. Around 46% of future development is expected to take place in metros (Chennai, Bangalore and Kolkata) and another 33% in super metros (Delhi and Mumbai). This will help in maintaining its premium pricing policy.

FINANCIALS: DLF has shown phenomenal growth in sales, as well as profit. With the real estate industry growing at 30%, DLF has been one of the star performers in this sector. Its sales have witnessed a compound annual growth rate (CAGR) of more than 95% over the past three years, while its net profit has seen an over threefold growth during the same period. However, it needs to be noted that sales growth is largely on account of increasing receivables.

The company has a strong asset portfolio with accruing leasing income. Tax sops in IT SEZs make them most lucrative for builders. DLF is expected to benefit significantly, as it has more than 20 million sq ft under IT-SEZ construction. Also, the company will not be able to maintain its premium price when more projects come onstream in the NCR, its core region of operation.

FOREIGN FUNDING: Foreign players find it worthwhile to buy small stakes in individual projects of large developers in India, rather than buying out companies. DLF has managed to secure Rs 1,675 crore of private equity (PE) in seven of its group housing/township projects. Around 49% of its stake was diluted in favour of Merrill Lynch and Brahma Investments in the beginning of this year.

This came at a time when the real estate industry was going through a bad phase. Though small developers are still finding it difficult to finance their projects, DLF seems insulated from this risk by its sheer size in the industry. The company also plans to list its real estate investment trust (REIT) in FY09 and raise funds to finance DLF Assets (DAL)'s purchases.

GROWTH DRIVERS: The trend in the real estate industry has changed from amassing land banks to exhibiting delivery capability. DLF has entered into several strategic tie-ups with international companies. The list includes Lang O'Rourke for construction, WSP for design and engineering, Feedback Ventures for project management, and Dubai-based Nakheel for SEZ development.
A key catalyst for the company will be DAL's ability to consistently raise funds to buy commercial assets from DLF. With the shift in the company's focus to commercial and office segments, this can also be made available for listing through a REIT, once DLF gets regulatory approval.

RISKS: The company currently has large projects under execution. Timely delivery of these projects will be a key concern. Moreover, on the financials' side, the company has a high level of receivables that may impact its cash flows, which are stretched as of now. Also, delay in raising funds for DAL can impact DLF's topline in future.

OUR TAKE: DLF's strong record of delivery schedule and its scale of operations are proof of its operational capability. Moreover, the low debt on DLF's balance sheet makes it a much safer bet for long-term investors who can take advantage of growth in the domestic real estate sector.

Beta: 1.22
Institutional Holding: 6.55%
Dividend Yield: 0.36%
P/E: 30.47
M-Cap : Rs 82,105 cr
CMP: Rs 484.90