Shares of DLF, the largest real estate company, fell 6 per cent on Thursday, march 1, as Veritas, a Canadian investment research company, advised its clients to sell the company’s shares. The brokerage has said in a note that the company is worth Rs 100 per share and not Rs 213 at which it trades now.
In its observations the research note says since the IPO in May 2007, the company’s share price is down 57 per cent while the BSE Sensex rose 29 per cent. The research note says that the management has faltered at every step in executing its grandiose vision to be a conglomerate. The note cites examples of the company’s entry into hotels (the JV with Hilton has ended and Silverlink Resorts is up for sale), building mega townships (exited Bidadi in Karnataka and Dankuni in West Bengal) and build a mega convention centre in the Natioanl Capital Region or NCR only to exit in 2009.
The report highlights that DLF has no free cash flow and no credible plan to cut debt on its balance sheet. “A slowing real estate market in a high inflation environment and overexposure to Gurgaon – amongst India’s most speculative real estate markets will create tremendous pressure on the Company’s balance sheet,” the note says. DLF has already announced plans to sell non-core assets like land banks and stakes in joint ventures, according to previous reports.
In December quarter 2012 results presentation, DLF said that the company’s net debt stood at Rs 22,758 crore. Veritas says that the company could go to banks to restructure loans.
Veritas also expects the company to issue equity in a secondary offering thereby diluting shareholders, and killing the current dividend are the only reasonable options for the Company.
The report says that the company inflated sales and profit numbers of DLF Assets, a subsidiary that was merged with DLF. “We believe that via its dealings with DAL, from FY07 to FY11, the Company inflated sales by at least Rs 11,236 crore and profit before tax (“PBT”) by Rs 7,233 crore,” the report says.
