The recent DLF controversy overshadows the company’s fundamentals

Jwalit Vyas, ET Bureau Oct 9, 2012, 05.02PM IST
(At a time when macro economic…)

MUMBAI: At a time when macro economic factors are slowly tilting in favour of real estate companies, investor sentiments relating to DLF have been dampened by the recent controversy involving the company and Robert Vadra, son-in law of UPA chairperson, Sonia Gandhi. The question is whether the controversy will cloud the prospects of the company and whether the overall fundamentals of the company are strong.

DLF had said that it has given a business advance or interest free loan of Rs 65 crore to a company controlled by Vadra. Though the company's accounting in the annual report does not provide such detailed information, this figure seems very small given the sheer size of the company's balance sheet. The company's total net asset value is Rs 49,000 crore according to two leading multinational brokerages. This value has been arrived at by adding all asset values and subtracting the debt.

At the end of March 2012, the company had a net debt of over Rs 22,000 crore and paid Rs 1554 crore as interest. In comparison to this, the interest fee that the company could have earned on Rs 65 crore would be insignificant. Also the assets that the company allegedly transferred at a lower price are very small in comparison to its total assets.

The DLF stock corrected sharply by 7% in a single day after gaining 20% in a months time after the recent revelations . However today the company's stock was flat and closed at Rs 224.

DLF is India's largest listed real estate company. Its performance has been disappointing since the company launched its IPO towards end 2007. The company's sales have consistently declined since then, while debt has risen significantly.

In an attempt to reverse this, DLF carried out an asset sale program to reduce debt. The company has successfully sold its Mumbai property for Rs 2700 crore and is confident of selling two more assets - Aman resorts and windmills which together will fetch the company another Rs 2700 crore.

Also sales of the company are likely to pick thanks to project launches in the second half of the year. Additionally, the rentals from its retail projects are likely to rise with the government approving 100% FDI in single brand retail. But the recent controversy can weigh heavily in the near term.