DLF LIMITED
ANNUAL REPORT 2009-2010
DIRECTOR'S REPORT
Your Directors have pleasure in presenting their 45th Annual Report on the
business and operations of the Company together with the audited results
for the financial year ended 31st March, 2010.
Financial Results:
(Rs. in Crores)
Consolidated
2009-10 2008-09
Gross Operating Profit 3,939.60 5,985.98
Less: Finance Charges 1,110.04 554.84
Less: Depreciation 324.93 238.96
Profit before Tax 2,504.63 5,192.18
Less: Provision for Tax 702.25 675.36
Profit before minority interest 1,802.38 4,516.83
Share of Profit/(loss) in associates 0.82 (21.10)
Minority interest 10.78 (27.54)
Profit after Tax and minority interest 1,813.98 4,468.19
Your Company recorded consolidated revenues of Rs. 7,851 Crores in FY'10 as
compared to Rs. 10,431 Crores in FY'09, a decrease of 24.73%. Consequently,
the gross operating profit, on consolidated basis, reduced from Rs. 5,986
Crores to Rs. 3,940 Crores, a decrease of 34.19%. The net profit after tax
and minority interest declined to Rs. 1,814 Crores as compared to Rs. 4,468
Crores for the previous year, a decrease of 59.41%. The global economic
meltdown resulted in very thin demand for commercial spaces including SEZ
for sale and lease. This impacted the Company's operations and led to a
decline in sales and leasing in this category and consequently the
profitability. The FY'10 sales of Rs. 7,851 Crores, were thus largely from
residential real estate developments. In residential sales, there was an
increase of about 20% in FY'10 as compared to that in FY'09. However, the
EBIDTA margin for the year is at a healthy 50%, compared to 57% in the
preceding year. The Company's profit was also adversely impeded due to
increase in finance charges from Rs. 554.84 Crores in FY'09 to Rs.1,110.04
Crores in FY'10.
Your Company continued its focus on consolidation, stable growth and risk
management. Further, your Company would continue to target reducing its
overall debt by unlocking cash in non-core assets, cost-optimisation,
process improvements and efficient management of working capital while
focusing on various segments of real estate development and growth in
rental business.
Review of Operations:
The global financial crisis and the resultant credit crunch in 2008-09 led
to subdued demand for real estate products across all categories. The trend
continued in the first half of FY'10. However, during the second half, the
industry showed signs of reversing the downward spiral as the country's
economy continued to show signs of recovery. This led to revival of demand
in the residential developments, whereas the commercial developments for
sale and leasing did not show any significant signs of improvement.
Your Company, in order to weather the tremors of slowdown, repositioned its
product mix and changed its business strategies as per the changing macro
environment. Your Company focused on execution of ongoing projects and
chose to exit from non-core areas. To ensure sharper focus on execution
with greater emphasis on robust systems, processes and risk management,
your Company was reorganised around two distinct elements - Development
Business and Rental Business. The Development Business was segmented into
three business units with specific geographies with responsibilities for
all developments in their respective geographic areas. The Rental Business
comprising of rental streams from Offices, Malls, Facilities Management and
Utilities ensures sharp focus on the rental income, thereby enhancing
stable cash flows.
During the year under review, the Company's Board, based on the
recommendation of its Special Committee, approved the integration of Caraf
Builders & Constructions Private Limited (Caraf) (the holding Company of
inter-alia, DLF Assets Private Limited - DAL'), DLF Info City Developers
(Chandigarh) Limited and DLF Info City Developers (Kolkata) Limited with
DLF Cyber City Developers Limited (DCCDL), a 100% subsidiary of DLF.
Your Company unlocked about Rs. 1,800 Crores by exiting from very long
gestation projects and non-core assets. In view of better returns, your
Company dropped its plans to exit from the wind-power business. Your
Company met all its stakeholders' commitments in time during the year,
including its commitments towards lending institutions without any
restructuring of debt. Your Company was also able to significantly bring
down the average cost of debt from 11.9% in December, 2008 to 10.5% in
March, 2010 and repaid Rs. 5,600 Crores of debt during the year on or ahead
of schedule.
During the year under review, despite turbulent economic conditions, your
Company launched approximately 8.0 m.s.f. in Delhi and Gurgaon and 5.2
m.s.f. in the rest of India. The customers demonstrated their faith in your
Company as the projects received overwhelming response. A subsidiary of
your Company, in a consortium with IL&FS, bagged a contract for
construction of a metro rapid transport system in Cyber City, Gurgaon from
Government of Haryana. The project is first of its kind in the country.
Your Company believes that there is great potential in the Indian real
estate sector and that with economic stability, the demand for residential
as well as commercial segment would further strengthen. Therefore, to cater
the burgeoning demand for quality real estate, your Company will focus on
timely execution of projects, without compromising on quality and
compliances. To further strengthen its execution machinery during the year,
your Company's subsidiary bought out Laing O'Rourke's stake in the
construction joint venture DLF Laing O'Rourke (India) Limited and increased
it to 100%, retaining all the expertise, human resources and construction
equipments. Recognising your Company's vision, expertise and contribution
to the real estate sector, Euromoney magazine at Euromoney's Fifth Annual
Real Estate Awards, awarded the Best Global Developer Award for 2009 to
your Company along with the awards for Best Developer in Asia and Best
Developer in India. The performance of the Company on stand-alone basis
for the year ended on 31st March, 2010 is as under:
(Rs. in Crores)
Stand Alone
2009-10 2008-09
Turnover 3,220.43 3,839.04
Gross Operating Profit 1,916.38 2,734.80
Less: Finance Charges 847.24 809.86
Less: Depreciation 126.05 114.08
Profit before Tax 943.09 1,810.86
Less: Provision for Tax 175.71 261.00
Profit after Tax 767.38 1,549.86
Earlier Year Items:
Income Tax (4.06) -
Prior-period expenses (net) 6.38 2.09
Net Profit 765.06 1,547.77
Balance as per last Balance Sheet 2,676.24 1,734.96
Balance available for appropriation 3,441.30 3,282.73
Appropriations:
Transfer to Debenture 250.01 113.17
Redemption Reserve:
Transfer to General Reserve 76.51 154.78
Dividend on Equity Shares:
Dividend 339.48* 339.44
Tax on Dividend 11.38 28.91
Excess provision of previous - (29.81)
year written back
Surplus carried to Balance Sheet 2,763.92 2,676.24
3,441.30 3,282.73
* Proposed.
Future Outlook:
The Indian economy has shown strong resilience and robustness during the
global financial crisis. Given its large domestic consumption base, there
exists a demonstrated ability for future growth .This economic growth will
have a cascading positive impact on the demand for real estate products in
the residential and commercial segments.
Your Company, is therefore, focused on selling existing inventory along
with selective launching of new projects across all categories of real
estate development. However, there will be a specific focus on
strengthening margins across all projects. Having built a strong asset base
of rental assets, your Company will continue to focus on growing the rental
business of the Company to capture the growth in leasing demand to generate
stable cash flows.
Dividend:
Your Directors are pleased to recommend for approval of the Members a
Dividend of Rs. 2 per Equity Share (100%) of Rs. 2 each for the FY'10
amounting to Rs. 350.86 Crores (Rs. 339.48 Crores towards Dividend and
Rs.11.38 Crores as Dividend tax).
Corporate Sustainability:
Your Company's aspiration of continued leadership in the real estate
industry is embedded in its culture, offerings and services, whilst
upholding its principles of doing business safely and in a fully compliant
manner. Your Company being a responsible corporate citizen believes in
sustainable business practices in all spheres of its activities and is
committed to contribute to environmental protection, energy conservation
and social initiatives while continuing to meet the aspirations of all
stakeholders.
Credit Rating:
During the year under review:
* CARE assigned a rating of PR1+, which is the highest short term rating,
for Company's short term debt programme aggregating Rs. 15 bn.
* ICRA Limited, an associate of Moody's Investors Services, upgraded the
rating from A2+' to A1' for Rs. 30 bn. short term debt programme of the
Company.
* CRISIL, a unit of Standard & Poor's, upgraded the rating from A+ with
negative outlook' to A+ with stable outlook' to the Company's Rs. 92.90
bn. term loans, overdraft facilities and Rs. 50 bn. non-convertible
debenture programme and reaffirmed its P1' rating to the Company's
Rs.15.99 bn. short term loan, bank guarantee, letter of credit and Rs. 30
bn. short term debt programme.
Fixed Deposits:
The Company has not accepted/renewed any public deposits during the year
under review.
Subsidiary Companies and Consolidated Financial Statements:
The consolidated financial statements of the Company and its subsidiaries,
prepared in accordance with Accounting Standards AS-21, 23 and 27, issued
by the Institute of Chartered Accountants of India, form part of the Annual
Report. The Company has made an application to the Central Government
seeking exemption under Section 212(8) of the Companies Act, 1956 from
attaching the Balance Sheet, Profit & Loss Account and other documents of
the subsidiaries to the Balance Sheet of the Company. The documents/
details will be made available upon request to any Member of the Company
and are also available for inspection by any Member of the Company/ its
subsidiaries at the Registered Office of the Company/its subsidiaries and
at the Corporate Office of the Company during working hours up to the date
of Annual General Meeting.
Conservation of Energy, Technology Absorption and Foreign Exchange
Earnings/Outgo etc.:
The particulars required to be disclosed under Section 217(1)(e) of the
Companies Act, 1956 read with the Companies (Disclosures of Particulars in
the Report of Board of Directors) Rules, 1988 are given at Annexure-A
annexed hereto and form part of this Report.
Particulars of Employees:
In terms of the provisions of Section 217(2A) of the Companies Act, 1956
read with the Companies (Particulars of Employees) Rules, 1975, the names
and other particulars of the employees are set out in the annexure to the
Directors' Report. However, as per the provisions of Section 219(1)(b)(iv)
of the said Act, the Directors' Report and the Accounts are being sent to
all the Members of the Company and others entitled thereto excluding the
statement of particulars of employees. Any Member interested in obtaining
such particulars may write to the Company Secretary at the Registered
Office of the Company.
Employees Stock Option Scheme (ESOS):
During the year under review, your Company allotted 2,40,457 equity shares
upon exercise of stock options by the eligible employees under the
Employees Stock Options Scheme, 2007.
Information in terms of Clause 12 of the SEBI (Employees' Stock Option
Scheme and Employees' Stock Purchase Scheme) Guidelines, 1999 is at
Annexure-B annexed hereto and forms part of this Report.
The certificate, as required under Clause 14 of the said Guidelines,
obtained from the Statutory Auditors with respect to implementation of the
Company's Employees Stock Option Scheme, 2006, shall be placed at the
Annual General Meeting.
Debentures:
During the year under review, the Company has issued 2 series of Non-
convertible Debentures (NCDs) of a face value of Rs. 10 Lacs each on
private placement basis aggregating to Rs. 1,000 Crores, as per details
below:
i) 7,000 10.50% Fully-paid Secured Redeemable Non-convertible Debentures
(NCD's) of face value of Rs. 10 Lacs each, aggregating to Rs. 700 Crores
with semi-annual interest payment, redeemable after 3 years from the date
of allotment; and
ii) 3,000 10% Fully-paid Secured Redeemable Non-convertible Debentures
(RNCDs) of face value of Rs. 10 Lacs each, aggregating to Rs. 300 Crores
with semi-annual interest payment, redeemable after 2 years from the date
of allotment.
Listing at Stock Exchanges:
The equity shares of your Company continue to be listed on BSE & NSE and
form part of S&P CNX Nifty and BSE-30 indices. The Non-convertible
Debentures issued by your Company are also listed on the Wholesale Debt
Market (WDM) segment of National Stock Exchange. The listing and custody
fees for the year 2010-11 have been paid to the Stock Exchanges and
NSDL/CDSL, respectively. Pursuant to Clause 5A of the Listing Agreement,
the Company has opened a suspense account and has placed unclaimed equity
shares allotted in 2007 IPO. As on 31st March, 2010, 6,410 equity shares
were lying unclaimed by the rightful owners.
Management Discussion & Analysis Report:
The Management Discussion and Analysis Report as required under Clause 49
of the Listing Agreement with the Stock Exchanges forms part of this
Report.
Corporate Governance Report:
The Report on Corporate Governance as stipulated under Clause 49 of the
Listing Agreement forms part of this Report.
The requisite certificate from the Statutory Auditors of the Company, M/s.
Walker, Chandiok & Co, Chartered Accountants, confirming compliance with
the conditions of Corporate Governance as stipulated under the aforesaid
Clause 49, is attached to the Corporate Governance Report.
Directors' Responsibility Statement:
As required under Section 217(2AA) of the Companies Act, 1956, your
Directors confirm having:
a) followed in the preparation of the Annual Accounts, the applicable
accounting standards with proper explanation relating to material
departures, if any;
b) selected such accounting policies and applied them consistently and made
judgments and estimates that are reasonable and prudent so as to give a
true and fair view of the state of affairs of your Company at the end of
the financial year and of the profits of your Company for the period;
c) taken proper and sufficient care for the maintenance of adequate
accounting records in accordance with the provisions of the Companies Act,
1956 for safeguarding the assets of your Company and for preventing and
detecting fraud and other irregularities; and
d) prepared the Annual Accounts on a going concern basis.
Auditors:
The Auditors, M/s. Walker, Chandiok & Co, Chartered Accountants, hold
office until the conclusion of the forthcoming Annual General Meeting and
offer themselves for re-appointment. Certificate from the Auditors has been
received to the effect that their re-appointment, if made, would be within
the limits prescribed under Section 224(1B) of the Companies Act, 1956.
Auditors' Report:
There is no qualification or adverse remarks on the stand-alone financials
of the Company. Further, the observations given in Point No. 4 of the
Auditors' Report on consolidated financials read with Note No. 16 of
Schedule 24 to the consolidated financials, are self-explanatory and do not
call for any further comments.
Directors:
Pursuant to Section 256 of the Companies Act, 1956 read with the Clause 102
of the Articles of Association of your Company, Mr. Rajiv Singh, Brig.
(Retd.) N.P. Singh and Mr. B. Bhushan, Directors retire by rotation at the
ensuing Annual General Meeting and being eligible have offered themselves
for re-appointment.
Brief resume of the Directors proposed to be re-appointed, nature of their
experience and other details as stipulated under Clause 49 of the Listing
Agreement, are provided in the Notice for convening the Annual General
Meeting.
Corporate Social Responsibility:
The Company has made significant contributions in community welfare
initiatives including to underprivileged through education, training,
health, environment, capacity building and rural-centric interventions as
detailed at Annexure-C. The Employees of the Company have also participated
in many of such initiatives.
Awards and Accreditations:
Your Directors are pleased to report that your Chairman Dr. K.P. Singh has
been conferred with Padma Bhushan', one of highest civilian awards of the
country, in recognition and appreciation of his outstanding leadership role
in spearheading India's real estate development including creation of
world-class infrastructure.
Your Company has excelled in various dimensions of Corporate achievements,
recognized through peer and public evaluation. The details of awards and
recognitions to your Company are as under: Your Company has won the Dun
& Bradstreet award for Corporate Excellence. Dun & Bradstreet (D&B), is the
world's leading provider of global business information, knowledge and
insight. The Dun & Bradstreet - Rolta Corporate Awards 2009' recognised
and felicitated corporate India's leading companies from various sectors.
* Your Company has been conferred the Best Global Developer Award for 2009
by Euromoney magazine at Euromoney's Fifth Annual Real Estate Awards - the
most prestigious awards in global real estate. DLF also won the awards for
Best Developer in Asia and Best Developer in India for 2009.
* The DLF Golf & Country Club retained its top position as THE BEST'
course in the country for the third year running at the Asian Golf Monthly
Awards, which were held along with the Asia Pacific Golf summit, 2009 in
Kuala Lumpur, Malaysia. Asian Golf Monthly Awards are widely regarded as
Asia's golf course Oscars and the premier poll of golfing facilities across
the Asia-Pacific region.
* Your Company has been awarded the Golden Peacock Award for CSR, 2010 in
recognition of its contributions in the field of Corporate Social
Responsibility. The award recognises the path breaking initiatives
undertaken by DLF in substantially improving the lives of underprivileged
communities in its areas of presence. It is also a recognition of the high
standards of ethics and integrity upheld by the DLF group in all its
business practices.
Acknowledgements:
Your Directors wish to place on record their sincere appreciation to the
employees at all levels for their hard work, dedication and commitment. The
enthusiasm and unstinting efforts of the employees have enabled the Company
to remain at the forefront of the industry.
Your Company continues to occupy a place of respect among stakeholders,
most of all our valuable customers. Your Directors would like to express
their sincere appreciation for assistance and co-operation received from
the vendors and stakeholders including financial institutions, banks,
Central and State Government authorities, customers and other business
associates, who have extended their valuable sustained support and
encouragement during the year under review. It will be the Company's
endeavour to build and nurture the strong links with its stakeholders.
For and on behalf of the Board of Directors
Place: New Delhi (Dr. K.P. Singh)
Dated: July 28, 2010 Chairman
ANNEXURE-A'
Disclosure of particulars under Section 217(1)(e) of the Companies Act,
1956 read with the Companies (Disclosure of Particulars in the Report of
Board of Directors) Rules, 1988:
A. Conservation of Energy:
a) Energy conservation measures taken:
1) Installed 228 MW of Green wind based power turbines in various states of
India.
2) Installed co-generation plants using gas based power generators and
vapour absorption machines (VAMs). Presently, 5 projects have been
commissioned.
b) Additional Investment and proposals, if any, being implemented for
reduction of consumption of energy:
Additional investment is being planned to install further co-generation
plants. Use of the Solar energy in the common area lighting is being
practised.
c) Impact of the measures at (a) and (b) above for reduction of energy
consumption and consequent impact in the cost of production of goods:
1) DLF Group consumes about 150 MW of electricity in different buildings
and generates about 228 MW power through clean and green power sources
i.e., Wind farms. The wind power generation by DLF reduces about 4.7 lac
tonnes of CO2 emissions annually.
2) The Company is the largest owner of gas based building co-generation
power plants with an installed capacity of 143 MW reducing 2.4 lac tonnes
of CO2 emissions annually.
3) The Company is earning carbon credits of about 3.0 lacs CER (Carbon
Emission Reductions) annually from wind power projects.
d) Total energy consumption and energy consumption per unit of production:
As per Form A Annexed
B. Technology Absorption:
e) Efforts made in technology absorption:
DLF is the only Company who has made efforts to install gas turbines and
gas engines based building combined heat and power (BCHP) facilities in the
basement of its buildings.
C. Foreign Exchange Earnings and Outgo:
f) i) Activities relating to exports:
The Company is engaged in developing/ constructing residential and
commercial properties in India and selling the immovable properties to
customers in India and abroad.
ii) Initiatives taken to increase exports:
The Company does not have any export activities.
iii) Development of new export markets for products and services:
The Company receives remittances of sale consideration for immovable
properties located in India, purchased by the customers' abroad.
iv) Export plans:
The Company has taken many initiatives to increase the sale of immovable
properties to the customers abroad by designing premium apartments in
accordance with the requirements and lifestyle of NRIs, by holding meetings
with customers at different locations abroad, attending exhibitions, fairs,
etc., through its Senior Executives and Directors with a view to have
personal contacts with customers, by giving advertisements in India and
abroad, by having continuous touch with enquiries from customers abroad
through the Company's liaison office in London.
g) Total Foreign Exchange earned and used
(Rs. in Crores)
2009-10 2008-09
a) Foreign Exchange earned 198.50 99.28
b) Foreign Exchange used 154.04 62.90
FORM-A:
Form for Disclosure of Particulars with respect to Conservation of Energy:
A. Power and fuel consumption:
Current Year Previous Year
1. Electricity:
a) Purchased:
Unit 24,967,349.50 37,421,772.00
Total Amount (in Rs.) 113,601,440.20 178,127,635.00
Rate per Unit 4.55 4.76
b) Own Generation:
i) Through diesel generation:
Unit 72,050,010.90 109,431,014.00
Unit per litre of diesel oil 3.81 3.82
Cost/Unit (in Rs.) 10.30 9.81
ii) Through gas turbine/generator:
Unit 82,080,774.00 40,503,954.00
Unit per litre of fuel oil/gas 3.70 3.70
Cost/Unit (in Rs.) 4.60 3.51
2. Coal (Specify quantity and where
used):
Quantity (tonnes) NA NA
Total Cost (in Rs.) NA NA
Average Rate NA NA
3. Furnace Oil:
Quantity (K. Litres) NA NA
Total Amount (in Rs.) NA NA
Average Rate NA NA
4. Others/internal generation through
wind energy:
Quantity (Units) 491,879,676.00 364,785,013.00
Total Cost (in Rs.) 418,097,776.00 113,083,345.00
Rate/Unit (in Rs.) 0.85 0.31
B. Consumption per unit of production:
Standards
(If any) Current Year Previous Year
Products (with details) unit - NA NA
Electricity - NA NA
Furnace Oil - NA NA
Coal (specify quality) - NA NA
Others (specify) - NA NA
FORM-B:
Form for disclosure of Particulars with respect to Absorption:
Research and Development (R&D):
1. Specific areas in which R & D carried out by the Company:
The Company has initiated first of its kind building co-generation
activities. The waste heat of the fl ue gases from the gas turbines and gas
engines is used in the vapour absorption machines (VAMs) for air-
conditioning of office/ commercial campuses.
2. Benefits derived as a result of the above R & D:
The Company commissioned a 40 MW, first of its kind building co-generation
project with a combination of gas turbines and gas engines in Building No.
10, DLF Cyber City, Gurgaon. The above project will lead to save 23% energy
by chilled water production through waste heat recovery. This activity is
expected to reduce over 52,000 tonnes of CO2 emissions per year in
environment.
3. Future plan of action:
The Company is implementing similar co-generation projects in its upcoming
projects at Building No. 5, DLF Cyber City, DLF Silokhera & DLF Phase V,
Gurgaon, DLF Hyderabad and DLF Chennai.
4. Expenditure on R & D:
a. Capital }
b. Recurring } Nil
c. Total }
5. Total R&D expenditure as a percentage of total turnover:
Nil
Technology Absorption, Adaptation and Innovation:
1. Efforts, in brief, made towards technology absorption, adoption and
innovation:
Co-generation technology for buildings introduced successfully.
The Company has started wind based power generation in the States of
Rajasthan, Gujarat, Karnataka and Tamil Nadu.
2. Benefits derived as a result of the above efforts:
Based on the co-generation technology utilising VAMs, the Company is able
to improve cycle efficiency and save approx 23% of Electrical energy.
The wind based green power generation has been 4,918 lac units for the
FY'09-10.
3. In case of imported technology (imported during the last } NA
5 years reckoned from the beginning of the financial year) }
following information may be furnished: }
}
a) Technology imported }
}
b) Year of import }
}
c) Has technology been fully absorbed }
}
d) If not fully absorbed, areas where this has not }
taken place, reasons therefor and future plan of }
action. }
ANNEXURE-B'
Statement pursuant to Clause 12 of SEBI (Employees' Stock Option Scheme and
Employees' Stock Purchase Scheme) Guidelines, 1999 as on 31st March, 2010:
2007 2008 2009 Total
(a) Options granted 25,91,563 14,09,480 38,21,301 78,22,344
(Active Options)
(b) Pricing formula:
Intrinsic Value
(c) Options vested:
3,39,668
(d) Options exercised:
2,70,637
(e) Total number of equity shares arising as a result of exercise of
options:
2,70,637
(f) Options forfeited:
13,11,546
(g) Variation of terms of options:
N.A.
(h) Money realised by exercise of options
Rs.4,80,914
(i) Total number of options inforce at the end of the year:
78,22,344
(j) Employee-wise detail of options granted during the financial year 2009-
10:
(i) Senior Managerial Personnel (Directors on Board):
Mr. T.C. Goyal, Managing Director
Total Options granted till 31.03.2010 = 5,23,810. (including 1,18,110
options granted in FY'09-10)
(ii) Any other employee receiving grant in any one year of option amounting
to 5% or more of the options granted during the year:
Mr. Rajeev Talwar, Group Executive Director Granted 2,19,552 Stock Options
in FY'09-10.
Mr. Ashok Kumar Tyagi, Group Chief Financial Officer Granted 2,90,733 Stock
Options in FY'09-10.
(iii) Identified employees who are granted options, during any one year,
equal to or exceeding 1% of the total issued capital (excluding outstanding
warrants and conversions) of the Company at the time of grant:
Nil.
(k) Diluted Earning Per Share (EPS) pursuant to issue of shares on exercise
of option calculated in accordance with Accounting Standard (AS - 20-
Earnings Per Share):
Rs.4.51
(l) Where the Company has the employee compensation cost using the
intrinsic value of the stock options, the difference between the employee
compensation cost calculated using intrinsic value of stock options and the
employee compensation cost recognized if the fair value of the options had
been used and the impact of this difference on profits and EPS of the
Company:
Difference in employee compensation cost:
Reduction Rs.348.09 lacs.
Impact on Profit:
Increase by Rs.229.77 (net of Income Tax)
Impact on EPS:
Basic = + 0.01; Diluted = + 0.01
(m) Weighted average exercise price and weighted average fair value of
options whose exercise price equals or exceeds or is less than market price
of the stock:
Rs.2
Weighted average fair value for options granted on 1st July, 2009:
Rs.292.69
Weighted average fair value for options granted on 10th October, 2009: Rs.
397.83
(n) Description of method and significant assumptions used during the year
to estimate fair value of options:
Weighted average information for options granted on 1st July, 2009:
(i) Risk free interest rate: 6.75%
(ii) Expected life (in years): 5.5
(iii) Expected volatility: 86.16%
(iv) Expected dividend yield: 0.86%
(v) Price of the underlying share in the market at the time of option
grant: Rs. 310.80
Weighted average information for options granted on 10th October, 2009:
(i) Risk free interest rate: 7.26%
(ii) Expected life (in years): 5.5
(iii) Expected volatility: 81.87%
(iv) Expected dividend yield: 0.64%
(v) Price of the underlying share in the market at the time of option
grant: Rs. 416.05
ANNEXURE-C':
Corporate Social Responsibility:
DLF over the past many years has undertaken a number of social initiatives
in sync with its vision of 'Building India'. With the formation of the DLF
Foundation as the nodal service organization, DLF has reinforced its strong
commitment towards serving the poor and underserved communities. DLF
Foundation, in its second year since incorporation has continued with its
mission of empowering communities and initiated a number of charitable
projects for the poor and underprivileged in areas of education, training,
health, community development and environment.
The Company's contribution in the field of Corporate Social Responsibility
was duly recognized and DLF was awarded the Golden Peacock Award for CSR,
2010. The award recognizes the initiatives undertaken by DLF in
substantially improving the lives of underprivileged communities in its
areas of presence. The CSR activities of the DLF group are outlined in
succeeding paragraphs.
Education:
* Expanding coverage of DLF Rural Learning Excellence Centres. The DLF-
Pratham Learning Enhancement Programme was expanded to cover Government
schools in 44 villages of Gurgaon. It enables underprivileged children from
the rural community to enhance quality of learning in English, Mathematics
and Hindi. This programme has been extended to cover Advanced English
learning and establishment of rural libraries. This has now been further
strengthened through the DLF Mobile Library Programme. The programme now
covers over 5,000 children.
* Expansion of Schools for the Underprivileged Programme. DLF has expanded
its coverage in this programme by extending support to four non-formal
schools for the urban underprivileged covering over 1,200 children. All
facilities including fees, uniforms, books and mid-day meals are being
provided free of cost. Out of these, 30 students are being mainstreamed in
formal schools under a scholarship scheme where all their education
expenses are being supported by DLF Foundation. In addition, DLF has opened
a new DLF Swapana Sarthak School - II for providing free education to the
poor and underprivileged residing in village Nathupur. The English medium
school is being run as a model school with assistance from Gunjan
Foundation, an NGO committed towards promoting education. Free meals,
uniforms, books and bags are provided.
* Rural Schools for Providing Quality Education. DLF has partnered Bharti
Foundation for providing free quality education to rural children and
provide them opportunities to be able to compete on an equal footing with
those from urban areas. 15 village based schools in the underserved
districts of Rewari, Jhajjar and Kaithal in Haryana have been financed for
all their running expenses in perpetuity, which will benefit about 3,300
children annually.
* SBM Senior Secondary School. DLF is running a CBSE affiliated SBM Senior
Secondary School in Delhi. The school has on its rolls 780 students coming
from low income group families. DLF has now constructed a state-of-the-art
school premises with a completely new look at its own cost which has become
functional from this session.
* Schools in Gurgaon. In addition to the existing CBSE affiliated 10+2
Summerfields School, Gurgaon having 1,800 students, DLF has opened the
Ridge Valley School. This school is initially catering to the primary
sections and will expand thereafter to a 10+2 CBSE school. The school
session commences from the 2010 academic year.
Health:
* DLF Rural Primary Health Centres. DLF has commenced a rural health care
programme under which four Rural Primary Health Centres have been set-up in
Haryana. A similar Centre has commenced operations in Dhaunaran, Punjab.
These are bringing about a significant change in the facilitation of
medical care to the rural community by covering over 1,50,000 villagers.
Specialists are available at the Centres during clinic hours and
partnerships have been established with leading hospitals for evacuation
and treatment of patients for secondary and tertiary care.
* Eye Care camps. A number of eye care camps have been organized in rural
areas around Gurgaon in association with Arunodya Eye Centre. In these
camps diagnostics and surgical care is provided.
* DLF initiative in animal health care. DLF has taken an initiative in
animal health care by establishing a veterinary hospital in Gurgaon. This
state-of-the-art facility will cater to the animals in the urban and semi-
urban areas, while the rural population will be covered through regular
mobile veterinary health teams visiting the villages.
Aapki Rasoi: Mid-day meals for the disabled:
DLF has partnered the Delhi Government's 'Hunger Free Delhi Campaign' -
Aapki Rasoi for providing daily free meals at a disabled workers site at
the India Gate Lawns in New Delhi. Over 1 lakh meals have been distributed
in the past year.
Vocational Training Centres:
DLF Vocational Training Centres, operating with the philosophy of providing
end to end solutions for unemployed youth from underprivileged backgrounds
has trained and placed 1,500 trainees in their respective work fields. Two
new training centres were established during the year in Duskal, Andhra
Pradesh, in addition to the two existing centres functioning in Gurgaon.
Community Outreach and Integrated Rural Development:
Community outreach activities for rural development were undertaken in
association with NGOs, panchayats and local communities in the areas of:
a) Medical care through organising awareness and health camps;
b) Introduction of modern education tools;
c) Enhancement of education standards by enlisting credible professional
organisations;
d) Renovation of village schools and upgradation of rural infrastructure;
and
e) Construction of rural roads.
Environment:
For holistic urban and rural development, DLF has paid special attention to
environmental improvements. A total of over 1.2 lakh trees have been
planted by DLF over a period of time, in Gurgaon. HUDA has consistently
over the last seven years awarded DLF with 'Excellence in Horticulture
Preservation' award.
Donations for Social Causes:
DLF has been contributing towards a large number of social causes. These
include education for the poor and marginalised sections of society,
medicare for the deprived, construction and upkeep of places of worship of
different religions, animal care etc. DLF provides the facilities and its
premises for promotion of pressing social causes by which the
organisations/NGOs set up stalls in the DLF Malls and commercial buildings
to propagate their cause.
Management Discussion & Analysis Report:
I. INDIAN ECONOMY & THE REAL ESTATE SECTOR:
Fiscal 2009-10 began as a challenging year as a result of the significant
slowdown in the economy witnessed in the second-half of FY'09. This
followed the financial crisis across the globe and the resultant credit
meltdown. The macro economic scenario indicated that the growth rate would
remain subdued or trend lower in fiscal year 2009-10. However, the various
stimuli measures by the Government, both on the monetary and fiscal front,
accompanied by strong domestic demand paved the path for the recovery of
Indian economy in the second-half of FY'10.
Despite the continuing uncertainty in the global macro environment, the
Indian economy reported a growth of 7.4% for the fiscal year 2009-10. The
recovery of the economy also led to a revival in capital inflows which
witnessed a progressive increase through 2009-10. The Reserve Bank of India
estimates place the real GDP growth in India for the year 2010-11 at a
robust 8.5% making India amongst the fastest growing economies globally.
With this pace of growth being witnessed in the economy, concerns are also
beginning to emerge due to the consistently high rate of inflation being
witnessed both at the wholesale and the consumer price index levels.
Spiralling prices have seen a year on year growth of 10.2% in Whole-sale
Price Index (WPI) and 13.9% in Customer Price Index (CPI) for May, 2010
(Source: Labour Bureau and Economic Adviser) which have now begun to impact
demand and affordability. The Government policy actions will have to draw a
fine balance between growth and managing inflation. The recovery in the
Indian real estate sector is still in its early stages due to the lag
effect. Within the sector, the homes segment has seen buoyancy in volumes
and prices while the commercial segment lacks demand both for offices and
retail malls. The industry has also seen developers in a significant credit
crunch and hence accelerated access to the capital markets, renewed
borrowings from the banking system and non-core asset sales have also been
undertaken aggressively by the sector.
Residential Segment:
Subsequent to the economic crisis in 2008, there was a sudden and sharp
fall in the demand of real estate products. Customers postponed their
buying decisions on account of job uncertainties and concerns of regular
income resulting from the economic slowdown. The increased uncertainty of
business expansion led to companies slowing or completely freezing any new
employee additions. This created a huge demand- supply gap, wherein supply
exceeded demand leading to a significant correction in prices. With the
fiscal stimuli announced by the Government and the growth recovery in the
economy, this trend gradually reversed in the second half of FY'10 with
prices stabilizing to moving up in certain micro markets.
The credit crisis in 2008-09 also brought along with it a paradigm shift in
consumer preferences from attaining luxury and high end products towards
the more affordable and mid-income products. Developers thus shifted focus
from luxury and high end offerings towards offering a judicial portfolio of
mid-income/affordable and luxury residential projects.
While the demand drivers in the homes segment continue to drive longer term
growth prospects, higher inflationary concerns and the Governments
initiatives to control inflation through monetary & fiscal measures could
result in an interest rate-up cycle impacting affordability of customers.
In the current environment, the steep price increase that has been
witnessed in some micro markets, especially city centre locations, are
seeing volumes tapering off as customers are holding back their purchase
decisions in anticipation of a marginal price correction. Pricing
discipline by various developers would thus hold the key to sustainability
of volumes witnessed over the last 12 months.
As per Cushman & Wakefield research, the pan India cumulative residential
demand is estimated to be over 7.5 million units by 2013 across all
categories including the economically weaker sections, affordable, mid and
luxury segments. The affordable and mid segment category is likely to
constitute 85% of the total demand. 43% of the total demand is likely to be
generated in the cities of Bangalore, Mumbai & NCR. The residential demand
in the top seven cities of Bangalore, Chennai, Hyderabad, Kolkata, Mumbai,
NCR & Pune is estimated to be 4.5 million units by 2013. The graph below
depicts the year wise demand from 2009-13.
Commercial Segment:
The Indian office market did not remain insulated from the global upheavals
in 2008-09 and consequently real estate activities in the segment witnessed
a significant slowdown as compared to previous years. The majority impact
of the slowdown was observed in the first-half of FY'10, when several
projects were pulled back due to the liquidity crisis. Lack of business
confidence and deferment of expansion plans by companies also led to a
drastic fall in leasing activity. Various developers shelved their
commercial projects which resulted in the reduced supply of commercial
office space across major cities. As per certain estimates the total
commercial supply of office space across major cities in 2009 stood at
between 40-50 m.s.f., with the absorption rate at between 20-30 m.s.f. SEZ
projects were also under pressure during the year due to the STPI extension
of one year. As a result, various SEZ projects were deferred, with some
developers even de-notifying their SEZs.
Almost all micro markets experienced rental corrections over the previous
year. The rate of correction, however, eased out by the second half of
FY'10, with many locations beginning to stabilize.
2010 began on an encouraging note for India's commercial real estate
segment, with take-up improving across the majority of markets. Several
IT/ITES occupiers started leasing, spurred on by vastly improved business
forecasts for the year. The IT/ITES segment continues to be the dominant
demand driver of commercial space. New and expanding sunshine sectors such
as insurance, telecom & pharmaceuticals are also emerging as important
demand drivers. Whilst the India Inc. growth prospects over the next many
years bodes well for the commercial office segment, in the short to medium
term the excess supply would need to be absorbed. The industry's expansion
plans and capital outlays may be impacted if tighter policy actions are
seen in countries such as U.S.A. and China who are the major global demand
drivers and form a significant portion of India's export markets. As per
Cushman & Wakefield research, the pan India cumulative demand for office
space is estimated to be 196 m.s.f. by 2013 with the seven major cities of
Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, NCR & Pune accounting for
approximately 80% of total demand. Hyderabad, Pune & Kolkata are expected
to witness the highest compounded annual growth rate of 28% during 2009-13,
highlighting the growing prominence of these cities in the India growth
story. Bangalore is likely to have the highest cumulative demand of 34
m.s.f., followed by Chennai, owing to renewed interest from the corporate
sector post the economic crisis. Cumulative demand in Mumbai, NCR and
Bangalore will account for 42% of total demand, with Mumbai & NCR
accounting for 24 and 25 m.s.f. of office space demand through 2009-13,
respectively. The below graph depicts the year wise demand from 2009-13.
Retail Segment:
A slowdown in demand from both consumers as well as brands/retailers, led
to a supply lag in retail segment as against projections made at the
beginning of 2008-09. Slowdown in demand triggered off by reduced footfall
conversions led to low leasing activities and high vacancy rates further
adding to the sector witnessing reduced investment interest. Rents slumped
due to weakened demand and many projects were delayed, shelved or scrapped
in order to avoid an oversupply situation. Most brands withheld their
expansion plans and several retailers exited unviable outlets. Revenue
sharing model amongst the developers and the retailers emerged as a new
trend to mitigate cost pressures for both the developer and the retailer.
The beginning of 2010 has witnessed initial signs of interest in the
segment. Given the revival in the economy, growing consumer confidence and
the restraint in mall construction leading to a healthier supply demand
equation, mall rentals have started stabilising and signs of a gradual
increase in enquiries for leasing have begun. As per Cushman & Wakefield,
cumulative retail demand across India is estimated to be 43 m.s.f. by 2013
of which, demand in the top 7 cities of Bangalore, Mumbai, NCR, Pune,
Kolkata, Chennai & Hyderabad is estimated at 34.6 m.s.f. Mumbai, NCR &
Bangalore are all expected to witness the highest demand, together
comprising approximately 20 m.s.f. Highlighting the potential for retailers
to expand pan India, the Investment Commission of India expects the
increase in the share of organised retail to grow from 5% to 15.5% by 2016.
The graph below depicts the year wise demand from 2009-13.
II. BUSINESS AND FINANCIAL PERFORMANCE & OUTLOOK:
1. Strategy:
DLF, through repositioning its product mix and business strategies and
focusing on the 'right product & price combinations', weathered the
turbulent economic environment successfully. As in the previous year, the
Company focused on its core areas of business and chose to exit from non-
core, non-strategic business. It rationalized its land bank and further
intensified its concentration on execution of on-going projects. The debt
profile was well managed with all debt obligations being met on time. The
rental business was given an impetus with the consolidation of CARAF/DAL
bringing in the Company's fold quality assets that added a robust rental
earnings stream to the existing rental business. Despite the depressed
economic scenario, the Company continued to emphasize on earning strong
margins in order to enhance profitability and provide value to its
shareholders.
(i) Product Pricing & Launches:
The Company's strategy of launching products in a phased manner and
maintaining a healthy volume - profitability balance helped it meet its
realizations and targeted EBIDTA margins. The Company has always stressed
on the fact that in its long cycle business, launches have to be carefully
weighed in terms of the right pricing providing adequate margins. The
Company also gave added incentives to its customers in the form of timely
payment rebates, rebates on move-in, initial inaugural discounts and
enhanced value specifications thus providing customers with a compelling
product offering. As a result the Company was able to sell out 85% of its
residential offerings during the year which comprised a balanced mix of
both city centric and mid-income properties.
(ii) Land Bank Rationalization & Acquisition:
In order to consolidate its land parcels and rationalize the existing land
bank, the Company after due deliberation and consideration earmarked land
parcels in select locations that it did not see having any medium term
potential and the divestment of which would not have any bearing on the
Company's financial performance. These land parcels also included options
on land for long gestation projects. As a result the Company divested 19
m.s.f. of land parcels in locations across the country including land
parcels in Bangalore, Mumbai and Gurgaon. In addition it also purchased a
land parcel in a city centre location that provided it a saleable area of
approx. 10 m.s.f. As of 31st March, 2010, the total land bank of the
Company stood at 416 m.s.f. as against 425 m.s.f. at the beginning of the
year.
While select land bank rationalization will be an on-going process, the
Company's land acquisition strategy has become concentrated towards purely
land parcels in city centre locations and those that it might consider
strategic in nature. Reflective of these is the land acquisition that the
Company did in Gurgaon; a land parcel of around 350 acres in city centre
Gurgaon that it won in an auction by HSIIDC at a value of approximately
Rs.1,700 Crores.
Super Metro's - Delhi Metropolitan Region & Mumbai; Metro's - Chennai,
Bangalore, Kolkata and Hyderabad Tier I - Chandigarh, Goa, Pune, Nagpur,
Cochin, Coimbatore and Bhubaneswar Tier II - Vadodra, Gandhinagar,
Ludhiana, Amritsar, Jalandhar, Shimla, Sonepat, Panipat, Lucknow and Indore
(iii) Debt Profile & De-leveraging:
The Company, against a mandatory debt repayment of Rs. 3,549 Crores, paid
Rs. 5,633 Crores, while improving the quality of debt vis-a-vis lower cost
and higher maturity. The average cost of debt as on 31st March, 2010 stood
at 10.5%. The Company's net debt to equity ratio as on 31st March, 2010 was
at 0.53.
(iv) CARAF/DAL Consolidation:
During the year, the integration of Caraf Builders & Constructions Private
Limited (Caraf) (the holding Company of inter-alia, DLF Assets Private
Limited - DAL'), DLF Info City Developers (Chandigarh) Limited and DLF
Info City Developers (Kolkata) Limited with DLF Cyber City Developrs
Limited (DCCDL), a 100% subsidiary of DLF was completed.
The integration exercise between DCCDL and CARAF/DAL was done under the
recommendation of a Special Committee of Independent Directors which was
advised by a group of well established and reputed transaction/investment
banks and independent valuers. Consequent to the above exercise, the Board
of Directors of DLF accepted the recommendation of its Special Committee
and the relative valuation of DCCDL and CARAF/ DAL in the ratio of 60:40.
The above exercise achieves a substantial consolidation of the rental
assets, enhancing stable cash flows in the form of rentals from a quality
portfolio of assets and increases the proportion of strong, stable and
growing rental income in DLF's overall business portfolio. The integration
also resolves the 'perceived' conflict of interest between the promoter
entities and DLF and provides an opportunity to unlock value in an
integrated Company with all legal structures and enablers in place.
POST BALANCE SHEET DATE EVENT:
In April, 2010, DLF through its subsidiary CARAF acquired 90% of the
Compulsorily Convertible Preference Shares (CCPS) held by DSIPL in DAL. The
culmination of this transaction takes the overall stake of CARAF in DAL
from 50.6% to 91.9% hence providing the Company i.e., DLF, an opportunity
to consolidate its shareholding in DAL. The total consideration paid for
the CCPS was Rs. 3,085 Crores which was funded through a mix of debt, cash
in hand and internal accruals. It is important to observe that at the time
of integration of DAL, the investment of DSIPL was valued for and netted
off from the valuation of CARAF (including its subsidiaries).
(v) Divestment of non-core assets:
In order to bring a stronger focus on the core strengths of the business &
stress on management's time & effort to these, the Company at the beginning
of FY'10 had earmarked a programme for divestment of select non-core
assets. Non-core assets primarily comprised monies or advances to be
received from the Government for long gestation integrated township
projects and convention centres, hotel land and other land parcels with no
immediate development plans, advance license fee refunds and select non-
core businesses such as hotels and asset management. The monetization of
these would not impact the Company's financial performance over the coming
years.
The Company unlocked Rs. 1,800 Crores during the year from divestment of
non-core assets comprising some of the above mentioned non-core
assets/business. It also rejected an offer for the wind power business of
about Rs. 1,000 Crores, since the annuity stream from this business
provided a robust post tax yield.
(vi) Internal Business Restructuring:
The Company was internally restructured into two verticals - Development
Business and Rental Business, each imparting renewed focus on execution
with emphasis on robust systems, processes and risk management. The
restructuring exercise brings sharp focus on rental and development
business and enhances stable cash flows.
(a) Development Business:
The Development Business are split geographically into 3 subsidiaries i.e.
Gurgaon, Super Metros and Rest of India and will be involved in all real
estate development in their respective geographies. Each of these
subsidiaries will be responsible for their own Profit & Loss Account and
Balance Sheet leading to higher accountability from respective management
teams. These subsidiaries will be responsible for all activities across the
product value chain from launch of a product to final delivery to the
consumer.
(b) Rental Business:
The objective of the Rental Business is to further enhance the rental
portfolio of assets and increase the rental revenue flows from these
assets. The subsidiary would be looking at all gamut of business that lend
themselves to an annuity model and would comprise of commercial offices,
I.T. Parks, I.T. SEZs, Retail Malls, Utilities and Facilities Management.
In recognition of the Company's inherent strengths and the strategies
adopted to face successfully a year of challenges and emerge on the top,
the Company was conferred the Best Global Developer Award for 2009 by
Euromoney magazine at Euromoney's Fifth Annual Real Estate Awards- the
most prestigious awards in the global real estate industry. Further, the
Company also won the awards for Best Developer in Asia and Best Developer
in India. This prestigious accolade further fortifies the Company's vision
to be a world-class real estate developer and provide the best quality
developments to its customers.
Outlook on Risks & Concerns:
The real estate business in India is impacted by, inter-alia, regulatory
and monetary policies and investment outlook. The Company's operations and
its ability for future development has to be viewed in light of the above
and resultant factors such as the availability of real estate financing,
uncertainty on monetary and fiscal policy actions, changes in Government
regulations, foreign direct investments, approval processes, environment
laws, actions of government land authorities and legal proceedings. Other
business risks could be financial stability of commercial and retail
tenants, replenishment of land reserves, inability to compete effectively
in regional markets and/ or new business, lack of ability in identifying
consumer requirements in a timely manner, over-dependence in a particular
market/region, input price increases and various other risks that may be
attributable to real estate.
2. Business Review:
(a) Development Business Homes Segment:
The Company continued to enhance its reputation as one of the strongest and
most established developers in the country with an enviable track record
in developing urban housing, pioneering new products and offering an array
of products across various locations. Its superior execution track record,
exemplary design and architecture and strong brand name coupled with a
focus on safety helped the Company in making progressive in-roads into
various micro markets.
Performance FY'10:
After the downturn in 2008, the residential segment witnessed healthy
growth on account of economic stability and revived consumer confidence.
This was also in no small measure a result of select launches done by the
Company, with a compelling 'product & price' strategy that helped to revive
the market and brought customers back. The Company sold approximately 12.2
m.s.f. (net) during the year.
Prominent Launches in FY'10:
City Centre - Capital Greens, Delhi - Phase I, II & III - the project
comprising of more than 2500 units on offer met with an unprecedented
response with the first two phases having being sold out in a matter of
days with a 30% higher price in the second phase vis-a-vis the first. Phase
III pertaining to the luxury product category (as different from the
earlier phases) and comprising 150 apartments on offer was recently
launched at a price of Rs. 12,000 p.s.f. and has also met with a good
initial response.
Mid-income - DLF Valley, Panchkula, Chandigarh - The project was launched
in February, 2010 and comprised 1200 units at an average price of
approximately Rs. 2400 p.s.f., totalling approx. 2 m.s.f. The product which
was in the form of independent floors, met with a phenomenal response with
sales of the entire 2 m.s.f. on offer within a week, as against an initial
target of sales of approx. 1 m.s.f.
Other key launches during the year included residential properties in Goa,
Gurgaon and Bangalore.
The table below provides a synopsis of the sales volumes and average prices
realized for the Homes segment in 2009-10.
Region/Head City A B C D
Super Metro Delhi 4.56 4.21 3,300 7,838
Gurgaon DLF City & New Gurgaon 3.50 3.12 2,550 8,173
Rest of India Panchkula, Banglore & Goa 5.17 3.90 950 2,439
Existing Stock New Gurgaon, Kochi & Indore 0.00 1.32 350 2,652
Total 13.23 12.55 7,150 21,102
A = Area Launched (m.s.f.)
B = Area Sold (m.s.f.)
C = Sales Value (Rs. Crs)
D = Average Realisation (p.s.f.)
Outlook:
With the revival in sentiment and the latent demand in the housing segment
the Company is well positioned to capitalize on the resultant
opportunities. With a development potential of more than 290 m.s.f. spread
across the country, the Company will launch projects that cater to
different income groups and further fortify its position as provider of
quality urban housing in the country. The product mix in the forthcoming
year is expected to be a balanced mix of city centre and mid-income housing
across locations such as Mumbai, Delhi, Gurgaon, Bangalore, Hyderabad and
Chandigarh. Expected sales in FY'11 would be primarily from the existing
stock i.e. stock to be released in subsequent phases of already launched
projects.
Given the challenges faced in getting a number of approvals from respective
authorities in various cities, timing of launches would vary. The Company
would continue to focus on launching projects only after ascertaining the
'right pricing and costing' parameters and getting the optimum design and
planning metrics for better value addition. This is imperative in light of
the current high inflationary concerns that could potentially lead to an
input price increases and hence impact margins. The expectation of any
substantial policy change to control high inflation and the resultant risk
of an interest rate upcycle which may impact demand will also have to be
considered while taking into account future launches by the Company.
Project Execution Status and Development Potential:
The Devco comprising primarily the homes segment, followed by commercial
complexes has a combined area of 39 m.s.f. under construction as of 31(st)
March, 2010. Within this, the homes segment has 34 m.s.f., while the
commercial complexes segment has 5 m.s.f. of area under construction. As of
31(st)March, 2010, the area available for potential development in the
Devco (including area under construction) stood at 315 m.s.f.
(b) Rental Business:
(i) Offices Segment:
The Company today is amongst the most preferred names in providing quality
work spaces that meet global standards and provide modern amenities with
the best-in-class maintenance & service standards. The Company offers ready
to move in and built to suit options to its clients which comprise
developments encompassing retail & recreation centres, medical services,
business centres, ATMs, food courts and other amenities such as modern fire
detection and suppression systems. The Company's building designs
incorporate large efficient floor plates, wide column span and high floor
to floor clearance, for optimal space utilization and structures that are
designed for maximum safety.
A standing testimony to the Company's expertise in the offices segment is
the Cyber City office complex in Gurgaon, the largest privately built
office complex in the country which spreads across an area of more than 20
m.s.f. (including potential developments) and boasts of global MNC
organizations as its tenants.
Performance FY'10:
The year gone by was challenging in terms of leasing activity as Company's
postponed business expansion plans and new ventures were delayed or shelved
due to the uncertainty in the environment and lack of business confidence.
Rentals corrected sharply and existing available inventory forced
developers to stall or postpone ongoing constructions. With the revival in
the economy, leasing enquiries gradually picked up pace and rentals
stabilized. As clarity emerged on business growth prospects, the office
segment started showing signs of revival in the last quarter of FY'10. The
office leasing environment has been steadily improving with the Company
having leased 0.7 m.s.f. area in FY'10 (after accounting for
cancellations). Deliveries of approx. half a m.s.f. were made during the
year.
The focus in the year was on providing value added services to clients,
reinforcing and enhancing relationships. Construction of office properties
in select locations was also re-initiated in order to be well positioned
for the expected demand pick- up in the second half of FY'11.
Outlook:
With India Inc.'s aggressive hiring plans and the buoyancy in the economy,
demand for office leasing is expected to improve in the coming years. For
the Company, the first quarter of fiscal 2011 has seen leasing of 0.93
m.s.f., higher than the whole of last year. However, while volumes are
expected to show a recovery, given the existing and oncoming supply of
office space, market rents are unlikely to increase in the short to medium
term.
The office segment, though exhibiting signs of initial pickup, is subject
to the continuing recovery in the economy and the crystallisation of the
Indian industry's growth and expansion plans. Given the ongoing pressures
on the Government, the current macro environment may witness policy actions
that could hamper the current growth momentum. Any withdrawal of the
stimulus measures in global powerhouses such as U.S.A. & China along with
the troubles in the European Union could impact the leasing momentum in the
office space.
Another major factor that could potentially favour or impede growth in the
office leasing environment would be the impact of the proposed Direct Tax
Code and its effect on the IT SEZ's. Clarity on this front is yet to
emerge. With its superior locations and strong client relationships, the
Company is well positioned to take advantage of the India growth story and
is expected to be amongst the biggest beneficiaries as and when the leasing
demand strengthens. The Company expects to lease 3-4 m.s.f. of office space
during FY'10-11 across various locations.
(ii) Retail Segment:
In the Retail segment, the Company has the expertise to cater to different
retail formats. The Company was amongst the earliest one's to realize &
recognize the changing consumer preferences of the Indian customer and
resultant spending patterns. With higher disposable incomes, a global
exposure to aspirational and luxury products and the increasing influence &
desire of a premium lifestyle by the Indian urban youth, the retail
industry witnessed a paradigm shift. With the benefits of an established
brand name and strong track record coupled with a quality portfolio of
premium locations across India, the Company was able to serve the needs of
customers with different buying patterns and purchasing power. With
pioneering the retail revolution in early 2000, the Company today has well
proven expertise in providing a 'one stop shop' shopping and entertainment
experience by providing a discernible set of shopping labels and brands
intermingled with an array of recreational & leisure options in
thoughtfully conceived and aesthetically designed premium architectural and
commercial landmarks.
The Company today has approx. 1 m.s.f. of operational Malls located in the
cities/ regions of NCR, Delhi, Chandigarh, Kolkata etc. Amongst its
prominent retail malls are the Emporio, DLF Promenade & DLF Place, Saket
all based in New Delhi and having an enviable tenant profile comprising
luxury, premium and semi premium brands as its tenants.
Performance FY'10:
The year gone by has seen the retail segment as the most challenging due to
lower consumer spending and preference towards basic necessities rather
than luxury offerings, hence impacting tenant business. Rentals corrected
sharply and a host of ongoing developments were stopped mid-way due to the
complete lack of leasing demand. Brands postponed their expansion plans and
existing tenants exited unviable outlets. Revenue sharing agreements
between developers and anchor stores emerged as a new trend in the industry
where many such transactions were witnessed in the year gone by. The first
half of 2009-10 witnessed complete lack of movement in the demand for
retail space; the second half saw the emergence of enquiries in select
locations. The current focus for the Company would be to consolidate its
position in the segment and increase its occupancy levels in existing
operational malls.
Outlook:
While still subdued, the revival in the economy and growing consumer
confidence is expected to result in a gradual pickup in leasing
transactions. The Governments FDI policy in multi-brand retail could be a
significant growth driver in the short to medium term.
Project Execution Status and Development Potential:
The Company as on 31st March, 2010 has 17 m.s.f. of area under construction
in the Rentco. The area available for potential development in the Rentco
(including area under construction) stood at 90 m.s.f.
Energy Centres - Green Initiatives by the Company:
While providing value added services to its tenants in the Rentco, the
Company remains conscious of its responsibilities to the environment. The
Company is setting up gas based co-generation plants for providing
electricity and chilled water for air-conditioning of offices, commercial
buildings, complexes and malls. These captive power plants are distributed
co-generation plants, fully green and environment friendly and generate
chilled water (for air-conditioning) by using the waste heat from the
exhaust of the power generating equipments through Vapour Absorption
Machines (VAMs) and provide air-conditioning to commercial
buildings/complexes etc. These plants result in higher cycle efficiencies
and reduce emission of green house gases/ tonnes of CO2 by about 50% as
compared to conventional power plants. In addition to above mentioned
captive co-generation plants, as a part of the green initiative, the
Company has installed over 228 MW of wind power plants in the states of
Rajasthan, Tamil Nadu, Gujarat and Karnataka.
(c) Execution:
During the year, DLF added 21 m.s.f. (net) under construction in FY'10
spread mainly across the cities of Delhi, Gurgaon and Bangalore; comprising
homes and commercial complexes. The total area under construction as of
31st March, 2010 stood at approx. 56 m.s.f.
The Company during the year enhanced its construction prowess and execution
ability by buying out the Laing O' Rourke stake in the DLF-LOR JV. This not
only brings in-house the resources of the JV in terms of machinery &
workforce but also supplements the Company's existing technical know-how,
systems and processes in the field of construction while providing complete
autonomy across the product execution life-cycle.
(d) Hotels:
In order to re-focus on the core business operations and in line with the
strategy adopted in 2009-10, the Company's hotel plans across the leisure
and business segments were substantially scaled down during the year. The
Company owns and operates the luxurious Aman Resorts across the world and
also has an alliance with the Hilton group for development and management
of hotels in India. The hotel business is currently undergoing a
comprehensive review by the Company as regards its future plans, commitment
towards resources and the extent of scale and size that the Company aspires
to achieve in this segment going forward. Select land parcels meant for
hotel developments in India have been disposed off, with a few more
proposed to be sold as a part of the non-core asset divestment programme.
As regards the Aman Resorts, the Company has witnessed an improved
operating performance during the year. Aman Resorts has been a recipient of
many international accolades. In its recent accomplishments, Aman Resorts
received the highest ranking for World's Best Hotel Chain & Marketing
Group' in the Zagat World's Top Hotels, Resorts & Spas 2009/2010 edition.
The Company will, at an opportune time, explore the possibility of a
strategic partnership for Aman Resorts in order to further strengthen the
current business model.
Area under construction (m.s.f.) Segment/Revenue:
Rentco 17
Super Metros 6
Gurgaon 21
Rest of India (North & South) 21
(e) Life Insurance:
DLF Pramerica Life Insurance Company Ltd. (DPLI), a 74:26 JV between DLF
Limited and Prudential International Insurance Holdings (PIIH) commenced
operations in September, 2008 with a purpose to market and sell life
insurance products in the country.
The Company has completed one full year of commercial operations as on 31st
March, 2010. With a consistent focus on a steady strategy of capital
conservation, sound liquidity and enhancement of operational and cost
efficiencies, the overall financial performance during the last year was in
line with the business plans envisaged.
Performance FY'10:
i. During the year, policies issued witnessed a substantial growth with
19,485 policies versus 2,778 in the previous year. Annualised premium from
these policies was at Rs. 44.79 Crores as against Rs. 6.45 Crores in the
previous year with a sum assured of Rs. 514.47 Crores (Previous Year Rs.
66.52 Crores).
ii. The Company more than doubled its agency offices to 29 by extending its
reach in National Capital Region, Punjab, Haryana and Gujarat with a team
of 2115 advisors (Previous Year 113) and tied up with 43 partners thus
enhancing its reach.
iii. The Company launched/modified 13 products during the year, in line
with customer requirements and changes in regulations on ULIPs regarding
capping of charges.
Outlook:
As life insurance penetration in India continues to be low when viewed from
the perspective of death protection, the Company expects an increasing
emphasis on the protection aspects of life insurance, along with the need
for high quality advice. The Company will continue to establish deep
distribution partnerships with emphasis on low cost, scalable business
models and at the same time, carefully monitor all opportunities and
challenges that the rapidly changing regulatory environment in the sector
could potentially provide.
(f) Asset Management:
The Company exited its asset management JV during the year. The Company's
decision to exit the business was triggered due to the changes by SEBI in
its evaluation criteria for granting approval to the joint venture mutual
fund to commence business in India. This primarily involved both the
partners to have a five year track record in the financial services sector
precluding DLF from partnering Prudential Financial Inc. in the business.
3. Financial Review Revenue & Profitability:
During the fiscal 2009-10, DLF reported consolidated revenues of Rs. 7,851
Crores, lower by 25% from Rs. 10,431 Crores in FY'09. EBIDTA stood at
Rs.3,940 Crores, lower by 34% as compared to Rs. 5,986 Crores in the
previous year. Net profit after tax and minority interest before prior
period items was at Rs. 1,814 Crores, a decline of 59% from Rs. 4,468
Crores. Net profit after tax, minority interest and prior period items was
at Rs. 1,720 Crores, a decline of 62% from Rs. 4,470 Crores. The EPS for
FY'10 stood at Rs.10.13 as compared to Rs. 26.24 for FY'09. The decline in
revenues was primarily a result of the substantially reduced sales to DAL
in 2009-10, as a result of lack of leasing in the SEZ space, owing to a
drop in demand and the continuing uncertainty in the policy environment. In
FY'09, DLF reported sales of Rs. 10,431 Crores, which also included a
significant portion of sales pertaining to DAL with commensurate profits.
In FY'10, sales stood at Rs. 7,851 Crores in which DAL sales were
substantially lower and at significantly lower margins as these were
primarily in relation to finishing costs incurred for the DAL properties.
The profitability during the year was mainly driven by new launches in the
residential segment and the scale-up in execution of pre-sold properties.
The revenue and profit figures of the Company during the year were after
adjusting for losses contributed by non-core business, like DLF Pramerica
Life Insurance, Hotels & Retail Brands which combined amounted to Rs. 255
Crores. The Life Insurance business is still in its gestation phase and
given the attractive market opportunity, this business is expected to
contribute positively once it reaches a significant size & scale of
operations. Both the Hotels and the Retail Brands business are undergoing a
comprehensive review in light of further substantial investments needed to
support these businesses through their early stages of evolution and the
need for prioritising resources towards the Company's core business
activities. The rental income during the year increased to Rs. 725 Crores
from Rs. 505 Crores in the previous year, due to the delivery of commercial
pre-leased properties that added to the existing rental stream. Total
expenditure before finance charges declined to Rs. 4,236 Crores from
Rs.4,684 Crores during last fiscal. The cost of revenues including cost of
lands, plots, constructed properties and development rights was contained
at Rs. 2,580 Crores from Rs. 3,229 Crores in the previous year. This was
in-part related to the execution & scale-up of existing projects and was
lower than the previous year as a result of the delay in starting
construction for new launches due to certain approvals not being in place.
The establishment expenses increased marginally to Rs. 467 Crores from
Rs.454 Crores and the other expenditure rose to Rs. 865 Crores from Rs. 762
Crores, as a result of the scale-up in business activity in 2009-10. The
finance charges, charged to the Profit & Loss account increased to Rs.1,110
Crores as against Rs. 555 Crores in the previous year.
EBIDTA margins saw a decline to 50% from 57% in the previous year. Margins
were impacted due to revenues from DAL which were significantly higher in
the previous year. Excluding sales to DAL, EBIDTA margins are comparable to
the previous year i.e., 2008-09 where volumes were lower and the product
mix was biased towards the mid-income segment.
Balance Sheet:
The Company's Balance Sheet as on 31st March, 2010 reflected a healthy
position with a net worth of Rs. 30,433 Crores and net debt to equity ratio
of 0.53. Cash reserves stood at Rs. 928 Crores with investments of Rs.5,505
Crores, mainly in liquid instruments. The Balance Sheet includes the impact
from the consolidation of CARAF / DAL that was given effect in the month of
March, 2010. The Company re-paid debt of Rs. 5,633 Crores for 2009-10 as
against mandatory payment of Rs. 3,549 Crores, meeting all its
stakeholder's commitments on time. Along with meeting its debt servicing
commitments to banks and financial institutions, the Company also improved
the quality of debt vis-a-vis lower cost and higher maturity period. It was
able to bring down the average cost of debt from 11.9% in December, 2008 to
10.5% in March, 2010.
The shareholders' funds improved to Rs. 30,433 Crores from Rs. 24,154
Crores on account of both the CARAF / DAL consolidation and the addition
to networth due to profits. The loan funds saw an increase to Rs. 21,677
Crores from Rs. 16,320 Crores, primarily as a result of the consolidation
of CARAF/DAL. The net debt-equity ratio stood at 0.53 as compared to 0.64
in the previous year.
Net fixed assets grew to Rs. 16,558 Crores from Rs. 7,912 Crores on account
of capitalization of leased-out assets and consolidation of assets held by
CARAF/DAL. Capital work-in-progress rose to Rs. 11,129 Crores from Rs.
5,688 Crores as area under construction increased and was further enhanced
with the recognition of assets under construction by DAL in its books.
Investments increased to Rs. 5,505 Crores from Rs. 1,402 Crores, with a
majority of these investments being in liquid instruments. Stocks increased
to Rs. 12,481 Crores from Rs. 10,928 Crores. Other current assets declined
to Rs. 4,685 Crores from Rs. 7,622 Crores, primarily as a result of the
elimination of assets & liabilities due to the consolidation of CARAF/DAL.
Other current assets included the unbilled receivables which were
recognised in revenues due to the percentage of completion method (POCM)
whereas the payments by the customers would only be made subsequently as
per the payment plan provided. The cash and bank balances reduced to Rs.
928 Crores from Rs. 1,196 Crores. The current liabilities stood at Rs.
4,637 Crores, up from Rs. 4,140 Crores. The increase was mainly on account
of monies received as advances from customers in the leased out DAL
portfolio properties.
With the purchase of 90% of the CCPS held by DSIPL in April, 2010 i.e.,
post the Balance Sheet date, the networth of the Company will be adjusted
to reflect for the above mentioned transaction accordingly.
III. CORPORATE FUNCTIONS:
(a) Information Technology:
Performance FY'10:
The IT function focused on increasing the usage of already implemented
technologies. Additional efforts were put in to conclude ongoing
implementations and derive business values out of it.
* Business Intelligence Tools:
While the ERP implementation was concluded in FY'09, as a next step the
RAMCO Business Intelligence reporting tool has been implemented for more
on-line analytical reports.
* Set-up of state-of-the-art Documentation Centre:
Work on setting up state-of-art documentation centre with floor space of
approx. 43,000 sq. ft. in one of the Company's own buildings in Cyber City,
Gurgaon has been completed. This centre comprises Technical Reference
Section, Media Room, Scanning Stations etc.
* Geographical Information System:
To test the capability of GIS land information system, a pilot project with
one of the business units of DLF was done. This is being tested with other
business units as well.
Outlook:
The IT team of the Company intends to focus on the following developments
going forward:
* Increased control over expenditure and profitability at project level
including enhanced use of IT based business intelligence packages.
* Faster processing of payables.
* Digital video surveillance systems in our Offices and Malls.
(b) Finance and Control:
The Company's finance team continues its strong focus to enhance and
streamline its systems, controls and risk management processes in order to
better manage risks, provide for smoother information flow across the
organization and ensure that all transactions meet with financial propriety
and accurate reporting. The finance team at the corporate level is well
supported by the independent finance teams of the various business units
that operate within pre-defined delegation, responsibility and
accountability parameters, providing for an efficient system of
flexibility, control and faster decision making. The existing structures
are also well supported by a compliance monitoring system that reports
periodically the adherence of or deviations from required statutory
compliances and prompts corrective actions in a timely manner.
The Company has an internal audit team, headed by a Chief Internal Auditor
reporting directly to the Audit Committee comprising a majority of
independent Directors. The team is adequately supported by external
Chartered Accountant firms which undertake various department-wise &
comprehensive pre-audits in order to ensure that the established systems,
processes and compliance mechanisms are being diligently followed and
adequate checks and balances are in place to identify non-observance. Major
observations made by the internal audit team are periodically reviewed by
the Audit Committee of the Board and remedial measures, if required, are
presented to the Committee along with their implementation status and
resolution timelines.
In addition to the in-house internal audit team, effective 1(st) April,
2010, Messrs. KPMG & Deloitte have been appointed as independent internal
auditors who would report directly to the Audit Committee of the Board.
The Company has also implemented a stringent external audit mechanism, as
required by applicable statutes.
(c) Human Resources:
Human capital has continued to be the key engine for our growth and
aspirations. DLF has been constantly reviewing its HR policies and
practices to keep abreast with the market changes and has embarked upon
several initiatives to focus on creating a positive work environment that
provides employees with ample growth and development opportunities as well
as ensuring high levels of motivation and engagement.
Recognizing that it is our intellectual capital that makes all the
difference, our on-going efforts have been towards integrating different
assets-skills, knowledge, talents and working styles into forming a
responsive and efficient team and an environment that is both inclusive and
collaborative.
Performance FY'10:
* Talent Acquisition & Resource Planning:
Our leadership status can be attributed to the diverse and highly talented
people in our team. The robust pool of talent has been built by committed
efforts to attract, transform and retain the finest talent in the industry.
Today the Company has a high calibre, multi-functional team of 3542
employees (as of 31st March, 2010) up from 3008 employees a year earlier.
The Company has built a young and vibrant team (average age of 36 years) of
highly qualified professionals. On the acquisition of the 50% equity in our
JV with Laing O' Rourke, a sizeable number of competent workforce was
added.
* Learning & Development:
The changing business scenario necessitates continuous development of
employees in terms of skills and competencies in line with the business
requirements. The evolving training structure includes the following:
* A structured Induction Programme for all levels and evangelisation to the
DLF Way for Fresh Campus recruits.
* Discover yourself as a trainer:
Giving a platform to our employees to unleash their hidden potential as a
trainer and share their knowledge with their own DLF Family. Training with
our in-house trainers covering topics in realm of technical & non-technical
know-how.
* Express learning:
An e-learning initiative for knowledge sharing with employees.
* Worker's development:
Training programme for Class IV employees to address the needs and concerns
of Class IV employees and improve their well-being.
* Employee Engagement & Welfare:
The employees remain connected and updated through various communication
channels including town halls, management workshops/updates from the Vice
Chairman's desk, the intranet (DLF Connect) and internal HR help lines. An
in-house fortnightly HR newsletter SAMPARK is now a way of life for keeping
in touch with the growing DLF family.
Our Annual Cricket event is now looked forward by the DLF family.
Photography, painting competitions, online quizzes, and debates on topical
themes enthuse and involve a large number of employees.
(d) Legal:
The Legal Department provides backbone' support to its business segments
located across the country, securing and providing stability and
sustainability to the business. The Company employs a dedicated team of
legal professionals well qualified in different legal functions. The team
believes in corporate ethos that blends tail-end creativity,
professionalism and dedication of purpose, while keeping an eye on strict
Corporate Governance. The Company established a track record of achieving
many a milestone judgments in Company's favour delivered by various courts
on material issues. The year 2009-10 witnessed stupendous success in
implementation of compliance systems of all applicable laws to Company's
business by all rank and personnel located in different parts of the
country. Land being a State subject, it was made obligatory for all
officials of the Company to observe strict compliance of all laws as may be
applicable to their projects depending upon the area and location. In
discharge of their functional responsibilities, this has become a part of
their day to day activity.
The Compliance and Corporate Governance Committee of the Board of
Directors, after due deliberations, rendered valuable guidance from time to
time to keep the legal compliance of all the laws on top priority.
Whistle Blower Mechanism:
In pursuit of maintaining highest ethical standards in the course of its
business, the Company has put in place a mechanism for reporting of
instances of conduct which is not in conformity with its code. No
significant complaints were received in Whistle Blower Policy during the
year.
(e) Corporate Secretarial:
The Corporate Secretarial department functions as a facilitator for good
Corporate Governance practices in the Company. A dedicated team of well
qualified professionals ensure that the Company follows the high governance
standards and guidelines laid down by the Board. Corporate Secretarial
drives the implementation of robust compliance systems and further assists
the Board in ensuring proper and adequate documentation of its meetings and
that of its Committees. It plays a pivotal role in managing a large
shareholder base in an efficient manner.
Cautionary Statement:
The above Management Discussion and Analysis Report contains certain
forward looking statements within the meaning of applicable security laws
and regulations. These pertain to the Company's future business prospects
and business profitability, which are subject to a number of risks and
uncertainties and the actual results could materially differ from those in
such forward looking statements. The risks and uncertainties relating to
these statements include, but are not limited to, risks and uncertainties,
regarding fluctuations in earnings, our ability to manage growth,
competition, economic growth in India, ability to attract and retain highly
skilled professionals, time and cost over runs on contracts, government
policies and actions with respect to investments, fiscal deficits,
regulation etc. In accordance with the Code of Corporate Governance
approved by the Securities and Exchange Board of India, shareholders and
readers are cautioned that in the case of data and information external to
the Company, no representation is made on its accuracy or comprehensiveness
though the same are based on sources thought to be reliable. The Company
does not undertake to make any announcement in case any of these forward
looking statements become materially incorrect in future or any update made
thereon.
|