Is DLF on the ropes? Stock is worth only Rs 100, says report

‘DLF is an organisation under duress’, starts a Veritas Investment Research report on India’s largest listed real estate company. And that is putting it mildly, given the argument for arriving at the above conclusion.

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Proclaiming themselves as builders of modern India, DLF, within five years of its IPO made at Rs 525, is now desperate to sell its assets, rationalise its land bank and divest non-core operations in order to avoid a debt default. From being a company best positioned to benefit from India’s great leap forward, DLF is now reduced to selling plots of land rather than erecting magnificent buildings the company was known for.

Veritas says that the claims made by the management about its ability to execute are fanciful. The report has raised question on all entities involved in the IPO from the auditor, the investment banker and media for aggressive accounting, perpetuating and aiding in the frenzysurroundingthe issue.

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Veritas has raised questions on the company’s disclosed numbers and its dealing with DLF Assets Ltd (DAL), a privately held firm. The report says that DLF has inflated its sales between financial year 2007 to 2011 to the tune of Rs 11,236 crore and its profit before tax to the tune of Rs 7,233 crore. During this period the company posted acumulativesales of Rs 44,089.16 crore and a profit before tax of Rs 21,866 crore. In other words, the report says that 25 percent of the sales and one-third of its profit before tax have been inflated.

The report has cited the alleged shortcomings of the management in terms of not meeting its promised goals, both financially as well as in terms of deliverables like its plans for two mega townships, hotels (tie-up with Hilton) and convention centres, all of which have been cancelled.

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Commenting on its balance-sheet, the report says that the company has no free cash flow and no plan for de-leveraging its balance-sheet. In conclusion it says that the company will require a loan restructuring. Issuing new equity and cancelling dividend is the only option left with the company.

As for equity investors, Veritas suggests that if quality of management is an investment criterion, DLF can be bypassed. In a best case scenario, the report says, the stock is worth Rs 100.

The last price at which DLF changed hands was at Rs 212, 6.4 percent lower than the previous day.