Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Worrisome signs for DLF - The largest Indian real estate company

|Includes: EEM, India Fund (IFN), IPN

Over the last 3 months, market price of DLF has moved from lows of INR 132.85 to current market price of INR 244. A whopping absolute return of above 80%, in less than 3 months could force many to sit back and take notice. Something has to go dead right for the company to justify the stock's stellar performance.

Being India's largest real estate developer, the stock has been radar of many Institutional Investors and is a constituent of many portfolios. Index funds and ETF's have no choice but to include the stock in their portfolio's given its presence in leading indices for Indian markets.
 
But does the company's performance warrant such magnificent returns and out-performance? Let us analyze the most recent quarterly results and try and find the reasons for optimism.
 
DLF Limited - Comparative Analysis of Results for Q4 FY09
 
 
Q4 FY09
Q3 FY09
Q4 FY08
QoQ Growth
Yoy Growth
Sales Turnover
555.3
4244.1
16133.2
-87%
-97%
Other Income
2454.8
2589.8
1432
-5%
71%
Total Income
3010.1
6833.9
17565.2
-56%
-83%
Operating Profit
2980.1
4119
8929
-28%
-67%
Gross Profit
722.7
2017.1
7120.5
-64%
-90%
Reported PAT
298.6
1780.6
6385.5
-83%
-95%
EPS
0.18
1.05
3.75
-83%
-95%
 
 
As is evident from the table above the results definitely tell a very sorry state of affairs for the company. The performance in the quarter has been nothing short of being pathetic. So much so that even the worst analyst expectations have not been met.
 
What makes matter worse for the company is the huge debt burden (INR 1395 Million) and its inability to service its debt with cash flows from the core-business. When the going was good, the management decided to venture into a lot of non core businesses like Wind Power Generation, Insurance etc. However, now the company is trying hard to sell these very assets it procured at record high prices to reduce its debt and focus on core business.
 
In addition, more than 40% of company's sales in FY09 were derived by selling to DLF Assets - a company owned by the Promoters of DLF. Now with the vanishing demand DLF Assets is no longer interested in buying new offerings of DLF Limited. DLF limited has more than INR 300 Million in receivables from DLF Assets and with falling demand for commercial and residential real estate, it may not be possible for DLF Assets to pay back the parent - DLF Limited. I just fear, that questionable steps or actions like stake sale, merger may be pursued to bail out DLF Assets and in turn the promoters at the cost of DLF shareholders.
 
Once again corporate governance is about to be made mockery of. Indeed a very sorry state of affairs for DLF and the Indian Real estate sector.
 
Disclosure: No Holdings, No Positions