Highlights of the Veritas Research report:
- DLF may need to restructure loans and dilute equity to get out of the hole it finds itself in, adding the company has negative cash flows of Rs936 crore this year.
- Questioned the disclosed book equity and asset base of the company, hinting at irregularities in the DLF and DLF Assets Ltd (DAL) merger.
- Through its dealings with DAL from fiscal 2007 to fiscal 2011, the company inflated sales by at least Rs11,236 crore and its profit before tax by Rs7,233 crore.
- Based on the quality of management alone, the share is not worth a buy. And considering all its ills, the stock is worth no more than Rs100.
- DLF has undertaken questionable related-party transactions to boost the value of DAL prior to its acquisition by DLF, thereby subverting the interest of minority shareholders via a higher purchase price for DAL.
- In the end, DLF will seek assistance from financial institutions to restructure loans. Issuing equity in a secondary offering thereby diluting shareholders, and killing the current dividend are the only reasonable options for the company
- DLF has also failed to deliver on commitments made during its IPO in 2007. Since then, the management has faltered at every step in executing its grandiose vision to be a conglomerate with tentacles spread across hotels, build mega townships, become free cash flow positive by fiscal 2011, build a mega convention center in the NCR region and so on.
What this means?
The top notch realtors suffering, the sector is probably worse off than what we are seeing on the surface. Another big realtor, HDIL is saddled with a debt of over Rs 4,000 crore and is selling land parcels. But surely today, HDIL will be feeling better knowing that big brother DLF is in a much bigger mess. Unitech's debt as at 31st Dec 2011 stood at Rs 5,190.26 crore. Debt of Parsvnath at the end of Q3FY12 stood at Rs.1300 crore. The total accumulated debt of the top 12 realtors of India at the end of the third quarter stands at a huge Rs.50,000 crore, of which DLF is responsible for 45%.