Subscribe to DLF IPO as a leading property developer

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DLF, a leading real estate company, is open for subscription with an initial public offer, IPO of 175,000,000 equity shares of Rs 2 each through a 100% book building process.

The issue would constitute 10.27% of the fully diluted post-issue capital of the Company.

Niche Brokerage report on DLF IPO:

Company Snapshot

DLF is the largest real estate developer in India in terms of the area of completed residential and commercial developments with approx 224 mn sq.ft, including 22 urban colonies as well as an entire integrated 3,000 acre township, DLF City, Gurgaon. DLF's primary business is in three verticals namely development of residential, commercial and retail properties spanning in all aspects of real estate development such as identification, acquisition of land, planning, execution and marketing of projects, maintenance and management of completed developments. DLF is also expanding its wings by entering into the infrastructure, SEZ and hotel, insurance businesses.

Land Reserve

DLF has land reserve in various regions across India amounting to 10,255 acres with an aggregate estimated developable area of 574 mnsq.ft, which includes 4 mnsq.ft of completed development and 44 mnsq.ft under construction. Of the approx 574 mnsq.ft, nearly 30% is located in or near developed urban areas. The unique feature of DLF land Reserve compared to its peers is that more than 90% of its land reserve is available as large, contiguous plots of land beneficial to develop mega townships.

In addition to the land reserves of 10,255 acres, DLF also has 554 acres of land arrangement. Thus, the current land reserve is sufficient for the planned development of over next 10 years for DLF providing major competitive advantage as well as protection against land price inflation.

Established brand name and reputation for project execution

DLF's position as a leading property developer is largely due to its established execution capabilities, reputation for providing prompt payment to landowners upon the acquisition of their land, developing and completing projects in a timely manner. Internationally and nationally renowned architectural consultants, such as Hafeez Contractor, the Jerde Partnership Inc. and Mohit Gujral, as well as design and engineering, construction and project management firms are associated with its projects, thus giving brand image and demands premium value for its projects compared to its peers.

New Business- to provide upside

DLF is diversifying into other real estate related businesses such as the development of SEZs, multiplex cinema, super luxury & budget hotels. In order to ensure the high quality of its projects, DLF has entered into joint ventures with WSP to provide engineering and design services and Laing O'Rourke to provide construction expertise. Further, DLF recently acquired an interest in Feedback Ventures to provide management consulting services.

Concerns

DLF owns only 0.5% of the land reserves

Though DLF and its subsidiaries own 1,160 acres, or 11.3%, of the 10,255 acres that comprise the land reserves as of April 30, 2007, DLF directly owns only 0.5% of these land reserves. The balance 10.8% is held by the subsidiaries of DLF. Of the 1,160 acres that DLF own, 38 acres have been leased to DLF by governmental authorities on a long-term basis and DLF has freehold title to the balance.

The remaining land reserves are subject to agreements to purchase, development rights agreements or memoranda of understanding for acquisition.

Outlook & Valuation

We would recommend investors to subscribe to DLF issue based on its position as a leading property developer along with established execution capabilities. Though, on the face of it DLF's issue pricing seems aggressive, it does not capture the potential upside from the leasing commercial real estate business model & the huge opportunities related to SEZ, hospitality, hotels and other joint ventures (two mega township projects planned with the Nakheel Group of UAE).