The finale: Issues arising from the latest Red Herring Prospectus

Our note dated 10 May 2007 (DLF Limited - The third coming - Big issue, bigger concerns)compared the differences between DLF's first draft Red Herring Prospectus (DRHP) filed on 11 May 2006 and the one filed on 29 March 2007. DLF recently released its final RHP on 25 May 2007. We note the changes in the final RHP and the last draft.


Land bank

• Payments due for the land are slightly lower at INR 54.5bn as of 30 April 2007 compared to INR 62.6bn as of 31 December 2006
• Land yet to be acquired is substantial with at least 4,691 acres still to be acquired
• Ambiguity in residential area sold as earlier DRHP mentions 0.6m sq.ft of residential area sold between 1 December 2006 and 26 March 2007 whereas our calculation shows that only 0.5m sq. ft of residential space was sold between 1 December 2006 and 30 April 2007

Financials

• Final RHP lists FY07 figures; There is a big jump in net worth compared to 9mFY07 figures as subsidiaries issue non-convertible, non-cumulative, redeemable shares worth INR 9.5bn carrying a surprisingly low coupon of 0.01% for Q4FY07
• As of 30 March 2007, DLF Assets Limited had not paid INR 23.5bn it owed for the sale of commercial properties to it by DLF Limited. Final RHP reports that as of 25 May 2007, DAL had paid INR 15bn. During the analyst meeting on 29 May 2007, the management says that DAL had paid the entire amount
• Adjusted for above two transactions, the debt-equity ratio is fairly high at 5.9 compared to the revealed figure of 2.5

IPO proceeds usage and IPO size

• IPO of 175m shares at a price band of INR 500-550 will raise between INR 87.5-96.25bn
• INR 35bn to be used in land acquisitions, another INR 35bn to be used for construction and development costs, remaining INR 17.5-26.25bn to be utilised for repaying debt

Valuations

• The annualised FY07E EPS, based on the adjusted financials, would be INR 4.4 (number of shares at 1,704m). At the upper end of the price band, the FY07E P/E is 125, and, at the lower end, it is 113.6
• Our tentative NAV estimate is INR 323 per share