DLF Inc2

Table of Contents
Rpt. 13252330 DLF LTD 2 - 37

17-Mar-2008 BNP PARIBAS SECURITIES (ASIA)
- MATHEW, SANDEEP, ET AL
Rpt. 13098313 DLF LTD 38 - 45

01-Feb-2008 EDELWEISS CAPITAL LIMITED
- SHAH, AKSHIT, ET AL
These reports were compiled using a product of Thomson Financial. www.thomson.com/financial
1
DLF Ltd
Sandeep Mathew
DLFU IN
India Initiation
(91 22) 6650 1665 Financials/Real Estate 17 March 2008
S O W H A T ? T H E B N P P A R I B A S A N G L E
DLF is at an inflection point

in earnings growth. As the
Net Profit 09 ...... INR97.6b Target Price INR1,010.00 BUY
market matures, the Street
will begin to shift attention to Diff from Consensus..(1.4%) Diff from Consensus..(3.8%)
performance over assets. Recs in the Market
Consensus (mean) ........INR98.9b Consensus (median) INR1,050.00
Shift to middle-income Consensus (momentum) .......... Ï Consensus (momentum) ..........Ï Positive.....................................11
segment will drive volumes. Neutral........................................3
Premium valuations Current Price.... INR606.25 Negative .....................................1

Upside/(Downside)............. 66.6% Consensus (momentum) ......... Ï
warranted due to its ability to
set new benchmarks.
Sources: Thomson One Analytics; Bloomberg; BNP Paribas estimates
Initiate with a BUY and TP of INR1,010 on India’s largest real-estate developer. It is at an inflection point in terms of
execution and is positioned to deliver earnings growth. We are impressed with its ability to set new benchmarks, which
is likely to yield premium valuations. High-quality land bank and asset mix will limit potential downside risk.
Sandeep Mathew (91 22) 6650 1665

Follow the leader BNP Paribas India Solutions Pvt Ltd
sandeep.mathew@asia.bnpparibas.com
Market to see cycles; performance will provide upside
Flow of institutional investment into India has set the stage for Avneesh Sukhija (91 22) 6650 1667
BNP Paribas India Solutions Pvt Ltd
introduction of real-estate asset cycles, in our view. We believe avneesh.sukhija@asia.bnpparibas.com
performance (earnings) will be the catalyst for stocks in the sector while
higher quality asset base will provide support to valuations. Earnings Estimates And Valuation Ratios
YE Mar (INR m) 2007 2008E 2009E 2010E
Company at an inflection point; mid-income segment will Revenue 40,533 132,960 194,374 230,302
Reported net profit 19,336 72,071 97,612 115,125
be key growth driver to FY10 earnings Recurring net profit 19,336 72,071 97,612 115,125
We anticipate the residential segment will contribute approximately 50% Recurring EPS (INR) 12.64 42.17 57.11 67.36
to top-line growth by FY10, primarily driven by the middle-income Rec EPS growth (%) 370.4 233.5 35.4 17.9
Recurring P/E (x) 48.0 14.4 10.6 9.0
segment. The recent success of its middle-income launches boosts our Dividend yield (%) — — — —
confidence in the company’s execution ability and we are confident EV/EBITDA (x) 18.7 11.5 8.8 7.5
about the its ability to deliver growth in excess of 20% annually. Price/book (x) 26.1 5.3 3.5 2.5
ROE (%) 84.8 62.8 40.2 33.0
Net debt/equity (%) 267.0 34.2 28.7 17.4
DLF’s differentiation warrants premium valuation Sources: DLF Ltd; BNP Paribas estimates
DLF is setting new benchmarks in the real-estate industry in India, such

as monetisation of assets through stake sales, high disclosure standards Share Price Daily vs MSCI
and ability to penetrate new markets. We believe these measures will (INR) DLF Ltd (%)
enhance shareholder valuations. 1,400 Rel to MSCI India 80
1,200 60
DLF is a likely beneficiary of industry consolidation 1,000
40
We believe the company’s aggressive pricing strategy to garner market 800
600 20
share in new middle-income residential markets is beginning to strain
smaller developers. A credit crunch due to lending restrictions in the 400 0
sector could force some of the smaller players to exit. DLF with its well- Jul-07 Sep-07 Dec-07 Mar-08
capitalised balance sheet is well-positioned to tap such opportunities. Next results/event April 2008
Market cap (USD m) 25,563
12m avg daily turnover (USD m) 91.0
Quality land bank and asset mix limits DLF downside risk Free float (%) 12
We initiate coverage on DLF Ltd with a BUY and target price of Major shareholder Promoters (88%)
INR1,010 implying 66.6% upside to the current market price. We have 12m high/low (INR) 1,207.50/555.20
ADR (USD) Nil
valued the company on 15x FY10E EPS at a premium to large China
Avg daily turnover (USD m) Nil
developers currently trading at 11x FY09E EPS. We believe Indian Discount/premium (%) Nil
developers will trade at a premium to China peers due to a more Disc/premium vs 52-wk avg (%) Nil
Source: Datastream
conducive regulatory environment. Our projected FY08-10E EPS CAGR
for DLF is 26.4%.
Please see the important notice on the inside back cover.

2
SANDEEP MATHEW DLF LTD DLFU IN 17 MARCH 2008
Contents
Flow of institutional capital to accentuate real estate cycles in India............................. 3
Introduction of Foreign Direct Investments has set the stage rolling for accentuated real estate cycles in
India. We encourage investors to look at real-estate stocks with good quality land bank, execution track
record, strong balance sheet and most importantly ability to deliver consistent earnings growth.
Residential segment will be the focus ........................................................................... 5

Middle income segment is poised for rapid growth in India. DLF will launch almost one-third of its new
projects targeting this segment over the next few years.
DLF warrants premium valuation................................................................................... 8

We like DLF’s ability to set new benchmarks in the industry such as monetisation of residential assets,
improved disclosure standards, and ability to penetrate new regional markets which will likely yield it
premium valuations.
Likely beneficiary of industry consolidation.................................................................. 10

DLF’s aggressive pricing strategy is beginning to strain smaller local developers. We believe DLF can
benefit from potential acquisitions in new regional markets as availability of credit to the sector dries up
due to stringent lending norms.
Quality land bank limits downside risks ....................................................................... 11

DLF has sufficient land banks to last it another 15 years. Exposure to various asset classes
(residential, commercial and retail) limits its exposure to one particular asset cycle.
Strong execution capability.......................................................................................... 13

Joint venture with Laing O’Rourke Group in UK provides DLF a strong execution platform. Centralised
procurement of raw materials provides DLF with economies of scale and protects it from a cyclical
supply chain.
We prefer to value earnings rather than assets........................................................... 18

We believe the company has reached an inflection point with earnings becoming the more crucial
component rather than land bank acquisition. So we believe the most appropriate way to value DLF will
be on an earnings basis and use total NAV as a directional guideline.
Appendices .................................................................................................................. 21
1. Devil’s advocate: Risks to our investment case 21
2. DLF Projects list 22
3. Key company information 23
4. Corporate governance 24
5. Regulatory environment in India 25
Financial statements – P&L, Balance sheet and Cash flow ........................................ 27
Please see India Research Team list on page 29.
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INDUSTRY OVERVIEW
Flow of institutional capital to accentuate real

estate cycles in India
2005 signaled the introduction of Foreign Direct Investment (FDI) into the real
estate sector in India. We believe FDI inflow increases the likelihood of deep and
accentuated real-estate cycles since these investments are made with a fixed
time horizon.
The real-estate industry in India is a sunrise industry and has gained prominence
following the public issuances by several real-estate companies in 2007. The sector is
yet to witness a major cycle partly because investments made were proprietary and
also because markets were not deep enough.
Has India witnessed a major real-estate asset cycle?

Institutional money will introduce ‘deep and accentuated cycles’.
Dealing with asset cycles – picking winners.
Exhibit 1: Flow Of FDI In Real Estate
(USD m)
1,600 1,513
1,400
1,200
1,000
800
600 467
400
200 38
0
2005-06 2006-07 2007-08*
*2007-08 figure is as of Dec’07

Sources: Finance Ministry; BNP Paribas estimates
Has India witnessed a major real-estate asset cycle?

Investments in real estate in India were traditionally considered a ‘safe’ investment Proprietary investments do
since there have been few instances of real-estate prices declining across India. The not accentuate real estate
cycles
primary reason was a significant proportion of the investments in the sector until 2005
were proprietary investments (synonymous to real demand), meant for end use or
where the investment horizon was not necessarily fixed. Hence, investors had the
option of holding on to investments in anticipation of higher returns and the markets
consequently never saw a deep real-estate asset cycle.
Institutional money will introduce ‘deep and

accentuated’ cycles
The increasing flow of institutional investment into the real-estate sector will introduce
deep and accentuated real-estate cycles since these investments are made with a Institutional investments
are made with a fixed time
fixed time horizon. We believe the common myth of real-estate prices holding up
horizon in place
forever is a thing of the past as investors now try to match returns over a specified time
frame.
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Dealing with asset cycles

Property prices in major cities in India have been steadily rising since 2000. The We prefer real-estate stocks
tightening of credit to real-estate companies and higher interest rates are beginning to with good quality land
stem property prices in overheated markets such as Bangalore. While we do not banks, execution track
believe there will be a severe correction in property prices, we would advise investors records, strong balance
to choose real-estate stocks selectively. We prefer real-estate stocks with good quality sheet and ability to deliver
consistent earnings growth
land banks, execution track records, strong balance sheets and, most importantly, an
ability to deliver consistent earnings growth.
4 BNP PARIBAS
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INVESTMENT THESIS
Residential segment will be the focus

We anticipate the residential segment will contribute approximately 50% to FY10
earnings from less than 20% in FY08. We believe the main growth engine for
residential sales will be the middle-income residential segment.
Middle-income segment will be the key growth driver

The middle-income residential segment in India is a key target market for most real- Middle-income housing
estate developers. We define the middle-income segment as households with annual shortage in India is
projected at 0.25m
income between INR0.2m and INR1.0m, and low-income as households with annual
households
income less than INR0.2m. According to the National Housing Board, the middle- and
low-income segments constitute the largest proportion of housing shortage in India.
Exhibit 2: Housing Shortages

(m households) LIG MIG and HIG
25.0 0.25
20.0
15.0
24.45
10.0
5.0
0.0
10th plan
Sources: National Housing Board; BNP Paribas estimates
According to National Council for Applied and Economic Research (NCAER), the
addition to middle-income households during the period FY05-10E will be
approximately 12m households, showing the most growth among the three income
groups.
Exhibit 3: Growing Middle Income Segment

(Number of Additions
households ‘000) Annual income 1995-96 2001-02 2005-06 2009-10E (06-10E)
(USD)
Low income group <5,000 160,077 176,640 185,525 189,698 4,173
Mid income group 5,000-25,000 4,532 10,746 16,395 28,441 12,046
High income group >25,000 268 807 1,731 3,806 2,075
Sources: NCAER; BNP Paribas estimates
Key growth drivers for the increasing demand for middle-income housing include rising
disposable income, increasing nuclearisation of families, increasing proportion of dual-
income families, and a lower dependency ratio.
DLF derives most of its revenues now from the commercial segment through sales to
One-third of future launches
DLF Assets. For the nine months ended December 2007, sales to DLF Assets
(of total area) likely to
amounted to approximately INR5b, or 50% of total sales. In the residential segment, happen in middle-income
premium residential properties sold in Gurgaon (part of the National Capital region) residential segment
have been the major contributor thus far. But, in future, we estimate that at least one-
third of total launches will come from the middle-income residential segment.
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Exhibit 4: Current Middle-Income Residential Projects

Project Saleable area
(m sqft)
Garden City – OMR Chennai 6.11
New Gurgaon 3.50
Indore Township 1.04
Sources: DLF Ltd; BNP Paribas estimates
Driving volumes through aggressive pricing

DLF recently launched a number of new middle-income projects in Chennai, Indore,
Kolkata and Gurgaon. The prices of these projects were at 10-20% discount to the
prevailing market prices in a bid to gain market share. Consequently, competitors were
forced to lower prices and/or offer discounts and special offers.
Exhibit 5: DLF Sale Prices vs Competitors
(INR/sqft) Current (INR/sqft) Expected

4,000 DLF Competition 3,500 DLF Competition
3,000
3,000
2,500
2,000 2,000
1,500
1,000 1,000
500
0
Chennai New Indore Kolkata 0
Gurgaon Bangalore Cochin
With steady margin gains

Further to the launches, the company continues to look towards a sustainable pricing DLF is able to retain 40%
model targeting the actual home buyer rather than the investor. DLF still retains a margins in the middle-
income projects
healthy 40% gross margin on these projects due to lower cost of land bank and
construction costs. DLF has launched its new middle-income residential projects on
the peripheries of the cities, thus reducing land bank costs. Also, through partial pre-
sales the company is able to estimate demand for its projects and records bookings in
a phased manner to maximise revenues. For instance, the Chennai project was
launched at a base price of INR2,800 per sqft. in November 2007 and the current rate
is approximately INR3,200 per sqft.
Pricing in line with affordability rates of middle-income groups

We believe DLF’s pricing strategy for the middle-income residential segment is Softening of interest rates
could be a key catalyst for
sustainable, since at these price levels home purchases are within the affordability
the middle-income segment
levels of the large middle-income group in India. With interest rates likely to drop, we
believe there is significant pent-up demand within the segment to absorb higher
volumes. Furthermore, the recent moderation of personal income taxes have
marginally improved affordability levels.
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Exhibit 6: Affordability Levels Across Middle-Income Segment

(%) Pre budget Post budget
70
59.5
60 53.6 54.7
49.7 50.3
50 46.0
40
30
20
10
0
2008 2009 2010
Note: Pre – Tax Income: INR 0.5mn, Tax slabs as of Pre and Post Budget 2008. Debt/Equity Ratio – 0.7, Interest rate 11%, y/y Income
Growth – 10%, Monthly EMI : INR .02m, Loan Tenure : 15 years
Source: BNP Paribas estimates
IT/ITES slowdown will have a minimal impact on this segment

We believe end-user demand for middle-income housing projects is more broad-based Maximum contribution of
and not concentrated across the IT and IT-enabled services (IT/ITES) industries alone. IT/ITES industry to middle-
income household growth
Matching NASSCOM’s projected IT/ITES employment figures to the projected middle-
(FY06-10E) is less than 18%
income household growth from NCAER data on Indian middle-class households
suggest that the maximum contribution from the IT/ITES industry during FY05-10E will
be only 17.8%. While a major portion of the current home buyers include IT/ITES
professionals, rising income levels in other industry segments should favour a rise in
middle-income housing demand.
Exhibit 7: IT/ITES Contribution To Middle-income Growth

Year-end 31 Mar 2005 2010E Growth
Middle income population (households) 16,395,000 28,441,000 12,046,000
IT/ITES employment (No. of employees) 1,057,000 3,206,091 2,149,091
Max. contribution of IT to middle-income growth (%) 17.8
Sources: NASSCOM; NCAER; BNP Paribas estimates
Exhibit 8: Salary Increase Survey
(y-y %) Top 5 industries indicating the highest salary increases

2007 2008E
16
Industry (%) Industry (%)
15
Real estate 25.2 Real estate 25.0
14 (infrastructure) (infrastructure)
13 Energy (oil/gas/coal) 19.0 Telecommunications 17.6
Retail (incl. Wholesale & 17.6 Energy (oil/gas/coal) 17.5
12
distribution)
11
Telecommunications 17.2 Hospitality/restaurants 17.1
10 Banking/finance 16.4 Banking/finance 16.9
9
8
2002 2003 2004 2005 2006 2007 2008E
Source: Hewitt Salary Increase Survey (2007-08)
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INVESTMENT THESIS
DLF warrants premium valuation

DLF has set the benchmark in the real-estate industry for efficient cash-flow
generation, and catering to demands of equity investors, which we believe
enhances shareholder value. These will provide DLF with premium valuations
over its peers.
Cash is king
The real-estate business has long development cycles, which necessitates the Injection of private equity
injection of equity at different stages. DLF has sold 49% stake in eight residential releases cash and reduces
demand risk
projects to Merrill Lynch and Brahma Investments. We view the move as a safe de-
risking strategy while ensuring healthy cash flows to fund project requirements.
Retaining a majority stake ensures project deadlines are met and also the company’s
participation in potential upside.
Monetisation of stake: More is not necessarily better

Unlike developed markets, where real-estate developers are looking to play the entire Emerging markets provide
value chain (from land bank acquisition to finished product), we believe we will see a significant development
potential. Developers can
growing trend of developers focusing only on certain parts of the value chain in India.
benefit by monetising
As the figure below indicates, the most attractive phase is land bank acquisition and stakes in projects early.
approval, which provides high margins to a developer due to the cumbersome
approvals process and requirement for local knowledge. The developer also bears
execution and demand risks in this phase, and hence the higher margins should they
choose to monetise the stake. Developers usually employ their own equity to purchase
land banks for new projects. We believe we will see a growing trend of developers
monetising stakes early in the project to release cash. This is a sustainable model for
larger companies with significant development potential like DLF.
The construction phase is normally subcontracted to smaller regional construction Returns contract over time
companies on a cost + markup basis (usually 7-20% markup in India). Developers as a developer plays the
entire value chain
utilise debt and customer advances in this phase. The delivery phase encompasses
the demand risk and returns tend to amplify based on end-user demand. As a
developer plays the entire value chain, returns begin to contract over time.
Exhibit 9: Early Monetisation Of Stake Enhances Return

Value addition
(margins)
Delivery
Construction
Approvals
Duration
Approval risk
Execution risk
Demand risk
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Catering to demands of investors – increasing

disclosures provide better visibility
The real-estate industry in India has been plagued with a lack of visibility due to its
fragmented nature and lack of disclosure. The financial results of all the developers,
with the exception of DLF, typically include only a quarterly income statement, which
provides very little clarity on operations.
DLF has begun to provide data on construction activity, bookings and average Additional disclosures
realisation rates on a quarterly basis across the residential, commercial and retail including NAV can
positively impact the stock
segments. We believe these data points help provide investors with a better
understanding of results. We would also like to point out that part of the reason for DLF
not providing full disclosure (such as detailed land bank) is due to the potential
sensitivity of the information. Exhaustive disclosure of land bank acquisition details
could erode the company’s competitive positioning in regional markets.
Exhibit 10: Quarterly Disclosures By DLF Increase Visibility

Commercial segment (m sqft) Super metros Metros Others Total
Sales/leased booked
Opening balance 8.45 1.11 1.91 11.48 Bookings provide a
Add : Lease booked during quarter 0.35 0.00 0.59 0.93 sense for end-user
activity
Add : Sales booked during quarter 1.15 0.70 0.49 2.35
Less : Handed over 1.35 0.00 0.00 1.35
Closing balance 8.60 1.82 2.99 13.41
Under construction Information on
construction starts and
Opening balance 14.49 9.10 10.84 34.42
completions
New launched 6.63 0.00 0.13 6.76
Handed over 1.35 0.00 0.00 1.35
Closing balance 19.77 9.10 10.97 39.83
For sale business

Wtd average rate sale price (INR/sqft) 11,392 6,289 6,174 8,769
Wtd average land + const. cost + overheads
(INR/sqft) 1,814 1,499 1,668 1,689
Margin 9,578 4,790 4,506 7,080
For lease business

Wtd average rate lease price (INR/sqft) 65 na 30 43
Wtd average land + const. cost (INR/sqft) 2,222 na 1,391 1,702
Sources: DLF LTd; BNP Paribas estimates
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INVESTMENT THESIS
Likely beneficiary of industry consolidation

Aggressive pricing and tightening credit are beginning to affect smaller
developers. DLF has a strong balance sheet, which will help it consolidate its
position within the industry when the opportunity arises.
Tight bank lending norms to the sector causing a credit crunch

DLF is well-positioned in the industry with relatively low gearing
Price wars to impact smaller developers more
Tightening of credit within the segment

The Reserve Bank of India (RBI) has tightened lending norms to real-estate RBI has been proactively
developers causing a credit crunch in the real estate sector. Also, the US subprime-led tightening lending norms to
the realty sector
global credit slowdown coupled with soaring residential property prices in India have
forced banks to be more wary of funding real-estate developers.
Some measures introduced by RBI in the past include blocking lending by banks for
purchases of land, and ensuring credit disbursal for funding ‘productive construction
activity’ only. RBI has also raised the risk weights for capital allocation to 150 basis
points on banks' exposure to commercial real-estate and home loans above INR2m.
DLF’s low leverage positions it strongly in the industry

DLF has one of the lowest leverages (net debt/equity of 0.48x as of 3QFY08) within Acquisitions can strengthen
the real-estate sector in India, making it a potential beneficiary of consolidation within DLF’s presence in new
regional markets
the sector. We believe DLF is likely to target acquisitions in some of its new regional
markets so as to strengthen its positioning within those markets.
Exhibit 11: Peer Group Comparison

Company Total land bank Net debt Equity Net debt/equity
(m sqft) (INR m) (INR m)
Ansal's 170.5 (1,563) 9,090 (0.17)
DLF 748.0 84,643 176,858 0.48
Emaar MGF 567.3 40,888 17,910 2.28
HDIL 125.0 8,385 30,042 0.28
IVR PRIME 56.6 3,135 814 3.85
Omaxe 140.9 4,119 3,177 1.29
Parsvnath 191.1 1,286 18,093 0.07
Puravankara 124.8 3,069 11,869 0.26
Sobha Developers 174.8 8,799 8,563 1.03
Unitech 822.9 43,260 28,460 1.52
Sources: DLF Ltd; company data; BNP Paribas estimates
Price wars hurting smaller developers

Our channel checks reveal that DLF’s aggressive pricing strategy is putting pressure DLF has been able to attract
on smaller developers in adjoining areas to lower prices. End-user demand is ‘end-user’ demand in its
new markets
beginning to move towards DLF properties due to a higher perceived quality. Smaller
developers’ margins are also under strain since their average cost of land acquisition is
higher than that of DLF and price wars are beginning to affect their cash flows forcing
them to introduce discounts and/or offer special incentives. We believe with real-estate
sector in India being a highly fragmented market with smaller players having a strong
regional focus, DLF should soon have good consolidation opportunities to tap into.
10 BNP PARIBAS
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INVESTMENT THESIS
Quality land bank limits downside risks

With a current land bank of approximately 748m sqft and annualised run rate of
50m sqft, which DLF intends to achieve in a steady state, DLF’s land reserves
will last for at least another 15 years. DLF’s high exposure to major cities, where
rapid urbanisation is anticipated, is likely to help it navigate turbulent real-estate
markets more effectively.
Sufficient land banks to last for another 15 years

DLF has approximately 748m sqft of land, which should support its development plans Absence of land-holding tax
for at least 15 years without further land bank additions. So the company has reached in India provides
developers with large land
an inflection point in terms of growth with focus shifting from land bank acquisitions to
banks a headstart
development and successful completion of projects. Absence of any land-holding taxes
in India (unlike China) increases the attractiveness of its current land bank.
Assessing land bank quality

We believe DLF has a higher quality land bank in comparison to peers, with the
highest pan-India exposure, a higher proportion of owned land bank, and lower land
acquisition costs. Exposure to various asset classes enables DLF to realise higher
margins while reducing significant exposure to one particular asset class.
Exhibit 12: Ownership Status
JDA/JV
7%
Owned
Land
93%
Land acquisition strategy

Land-acquisition strategy is a key differentiator of developers in India. The average
cost of land acquisition for DLF is only approximately INR324 per sqft despite high Average land bank cost is
only INR324 per sqft despite
exposure to metropolitan cities. The three most common ways to acquire the land are
high exposure to
through open auctions, purchase from farmers, and through pre-qualification of metropolitan cities
government tenders. DLF acquires land through all the three methods with the highest
proportion of land being acquired through farmers. Hence, DLF’s average cost of land
acquisition is cheaper in comparison to peers.
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Exhibit 13: Methods Of Land Acquisition

Method Description Competition Margins Time frame to develop land
Auction Open auctions (private and government) High Low Medium – Since the land is
award the highest bidder with the land acquired from the private players
parcel and approvals are still pending
Through farmers Developers acquire agricultural land from Medium High Highest – Since agricultural land
farmers and convert it for a specific needs can be used for commercial
purpose by paying the change of land purpose only after obtaining
use (CLU) fee approvals
Pre-qualification of Government invites tenders from Low Medium Lowest – Since land comes with
tenders qualified bidders for specific initiatives most approvals
(low-cost housing, etc)
Asset allocation not under developer’s discretion

Allocation of asset class (residential, commercial and retail) in India is a function of the Asset allocation is a
bylaws of state governments rather than the developer’s discretion. Hence, a vast function of government
bylaws and not the
majority of larger Indian developers will have higher exposure to the residential
developer’s discretion
segment (approximately 70%). The remaining space is allocated to commercial and
retail segments. The strategy that Indian developers, including DLF, employ is to
acquire agricultural land from farmers on the outskirts of the city at cheaper prices and
develop townships by paying a change of land use (CLU) fees. This is, however,
applicable only if the land is within the master plan of the city. Master plans are revised
usually only once in 15-20 years.
Pan-India exposure with strong presence in major metros

We believe a key strength of DLF is its exposure to high-growth cities in India Around 85% of DLF’s
especially major cities. Approximately 81% of its current land bank is spread across current developments are
focused in high-growth
the National Capital Region (Delhi, Gurgaon and Noida), Mumbai, Chennai, Bangalore
cities
and Kolkata. Approximately 85% of DLF’s current developments are focused in these
high growth cities.
Exhibit 14: Land Bank Comparison

——— Super metro* ——— ————— Metro** ————— –—— Tier-1 & Tier-2 –——
Company Area % of total land bank Area % of total land bank Area % of total land bank Total area
(m sqft) (%) (m sqft) (%) (m sqft) (%) (m sqft)
DLF 265.0 35.4 346.0 46.3 137.0 18.3 748.0
Unitech 144.6 17.6 405.4 49.3 272.9 33.2 822.9
Emaar MGF 179.5 31.6 14.4 2.5 373.4 65.8 567.3
Parsvnath 68.8 36.0 1.0 0.5 121.3 63.5 191.1
Puravankara 0.0 0.0 102.9 82.5 21.8 17.5 124.7
Sobha Developers 0.0 0.0 95.1 54.4 71.3 40.8 174.8
HDIL 107.0 86.4 0.0 0.0 16.8 13.6 123.9
Omaxe 37.1 26.4 0.0 0.0 103.7 73.6 140.9
* Super metro = National Capital Region and Mumbai Metropolitan Region, ** Metro = Kolkata, Chennai and Bangalore
12 BNP PARIBAS
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INVESTMENT THESIS
Strong execution capability

Given the aggressive expansion plans of DLF, a key question is the ability to execute.
We believe DLF has the necessary resources and relationships in place to
successfully execute on its ambitious targets.
DLF has delivered approximately 11m sqft of constructed properties (residential, DLF-Laing O’Rourke is a
commercial and retail) in FY07. The company currently has 59m sqft under key execution enabler
construction and aims to deliver 16m sqft in FY08 and 20-25m sqft in FY09. We
believe DLF is well positioned to execute because:
The DLF-Laing O’Rourke venture, which constructs its larger projects, will aid
execution
Its centralised supply chain provides economies of scale
Execution enabler – joint venture with Laing O’Rourke

Laing O’Rourke is the largest privately-owned construction firm in the UK and has DLF Laing O’Rourke is
more than 100 years experience in the construction business. The group has expertise working across asset
classes
in developing properties and also in constructing roads, bridges, tunnels, pipelines,
harbours, runways and power plants. It is present across Europe, Middle East and
Asia. Major clients include Railtrack, Stanhope, Thames Water and Grosvenor Estates.
DLF currently has a 50:50 joint venture (JV) with Laing O’Rourke. The DLF-LoR JV is
currently executing approximately 39m sqft of projects across India, which is
approximately 68% of projects under construction. More importantly, the JV is working
across different segments including residential (premium and middle-income),
commercial and retail, and also hotels. We believe the JV provides DLF a strong
execution platform to achieve its aggressive delivery plans in the coming years.
Exhibit 15: DLF-Laing O’Rourke Projects

Projects Area Status Segment
(m sqft)
Magnolias, Gurgaon 2.50 In progress Residential
Park Place, Gurgaon 4.25 In progress Residential
Garden City - OMR Chennai 6.11 Launched Residential
DLF Towers, Jasola 1.03 In progress Commercial
DLF Technopolis, Bangalore 0.53 In progress IT Parks/SEZ

IT Park, Bhubaneshwar 4.50 In progress IT Parks/SEZ
Infocity, Chennai 4.50 In progress IT Parks/SEZ
7B, Gurgaon 0.18 In progress IT Parks/SEZ
IT Park Gachi Bowli Hyderabad 1.90 In progress IT Parks/SEZ
IT Park , Kolkata 3.20 In progress IT Parks/SEZ
3C Galaxy, Noida 1.75 In progress IT Parks/SEZ
IT Park Rai 2.50 In progress IT Parks/SEZ
IT Park, Silokhera 6.20 In progress IT Parks/SEZ
Mall of India, Gurgaon 5.00 In progress Retail

DLF Times Square, Noida 2.15 In progress Retail
NTC Mall, Mumbai 2.69 In progress Retail
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Centralised supply chain ensures economies of scale

A centralised supply chain ensures that major construction materials (steel, cement Long-term agreements
and concrete) are directly purchased by DLF, thus resulting in economies of scale. reduces pricing risks for
key construction material
Furthermore, given the high volume of development, the company has entered into
long-term contracts with its major supply-chain partners thus reducing its exposure to a
cyclical supply chain.
Asset mix will limit company’s exposure to one

particular asset cycle
Residential plot sales can accelerate sales and amplify margins

DLF plans to sell an increasing proportion of plots in major cities, and Tier 1 and Tier 2 Plotted development could
cities such as Gurgaon, Indore and Mohali in FY09 and FY10. This will help it to meet yield margins in excess of
80%
delivery targets, since plotted developments have smaller development timeframes.
The major cost of plotted developments is land acquisition. Given DLF’s low-cost land
bank, the company should be able to realise margins in excess of 80% through sale of
plots. The sale of plots will also accelerate the cash flows. So we would not be entirely
surprised to see larger-than-anticipated sale of plots over the next two years.
Exhibit 16: Region Wise Break Up Of Planned Plot Sales
Tier - II
3%
Super Metros
Tier - I 29%
15%
Metros
53%
Brand value and track record are key differentiators that will help DLF
among luxury/super luxury apartment seekers
DLF has an established track record in the luxury and super luxury segment where it Super-luxury projects in
has already sold 17m sqft properties (to date). Thus, it has built itself a strong prime locations in Mumbai
and Delhi likely to see good
reputation among the prospective higher-income segment buyer. DLF is planning a
demand
super-luxury project in Mumbai (Tulsiwadi) and New Delhi (Chankyapuri). We believe
the average realisation rates could well be in excess of INR30,000 per sqft given that
both projects are located in prime locations within the major Central Business Districts.
These projects are likely to benefit from supply inelasticity in these regions.
However, we remain cautious about projects in the luxury segment in other regions
due to higher levels of speculative activity and we believe there is a stronger possibility
of price moderation in this segment.
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Commercial properties likely to face some headwinds

Commercial sales is currently DLF’s largest revenue stream with approximately 50% of
sales being realised from one major customer – DLF Assets. But we anticipate the
contribution to decrease to 30% by 2010 as sales from residential segment increase.
Major IT hubs could put a strain on development

Roughly 20% of the land bank to be developed over the next two years is dedicated to DLF plans to develop
the commercial segment. More than 80% of the commercial demand is generated by approximately 7.6m sqft of
commercial properties in
the IT/ITES industry. Hence, a slowdown in the sector can negatively impact volumes
major IT hubs in FY09 and
and we could potentially see delays in major IT hubs including Gurgaon, Bangalore, 10.6m sqft in FY10
Chennai and Kolkata. DLF plans to develop approximately 7.6m sqft of commercial
properties in these regions in FY09 and 10.6m sqft in FY10.
Exhibit 17: DLF’s Planned Commercial Development

(mn sq ft)
Super Metros Metros Tier 1 Tier 2
8 7.5
6.9
7
6 5.6
4 3.2
3.1
2.7 2.5
3
2.0
1.7
2 1.4 1.5
1 0.3
0
2007-08 2008-09E 2009-10E
However, DLF mitigates some of the risks well …

Pre-sales/pre-lease mitigates occupancy risk to an extent
DLF ties in approximately 60% of its developments with pre-lease/pre-sales, which
provides it minimal occupancy risk while also providing it pricing leverage over the
remaining 40% once the property is nearing completion.
Corporate relationships
DLF works in tandem with many large corporates and relies on the proposed business DLF plans new projects in
plans to choose development locales. Although pre-sales/pre-lease is a non-binding conjunction with expansion
agreement, it provides DLF with visibility and a sense for prevailing market demand. plans of major corporates
Introduction of REITs in India could be a potential catalyst

Introduction of REITs should lead to increased interest for Grade A office space in
India. DLF has an established presence in the category, having delivered
approximately 9m sqft of commercial office space over the past few years.
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Too many malls spoiling the fun – we are cautious on

retail growth
Theme-based malls and partnerships minimises DLF’s retail risks

DLF is beginning to build more theme-based and luxury malls across the country DLF has a good in-house
focused on jewellery, fashion, luxury, etc. The company has entered into strategic anchor tenant in DT
Cinemas
long-term partnerships with luxury brands such as Armani and Dolce & Gabbana for
retail space. DLF also has a good in-house anchor tenant in DT Cinemas. DT Cinemas
is DLF’s chain of multiplexes, which are located in most of DLF’s upcoming retail malls.
Exhibit 18: Retail Tie – Ups

Company DLF's stake Business segment Relationship
(%)
Armani 49 Retail – luxury Armani, an Italian luxury fashion brand will set up its first store in New Delhi. The
JV plans to supply the branded products to other retailers as well.
Dolce&Gabbana 49 Retail – luxury Dolce&Gabbana (D&G) is a high end fashion house. DLF will provide real estate
and help D&G to scale up operations in India
Hospitality, asset management and Bidadi Township

could provide additional upside
DLF’s foray into the hospitality sector will result in the development of 20,000 rooms by
2013. DLF has recently acquired 50% stake in Aman Resorts, an international luxury
resort chain (annual revenues of approximately USD50m), and has agreements with
Hilton and Four Seasons to manage DLF’s hotel properties.
DLF has signed a 39:61 JV agreement with Prudential Financial Inc to provide asset We have not factored any
management services in India. The asset management venture is expected to make a upside from hospitality,
asset management and
total investment of INR2b with DLF contributing approximately 40%, with an expected
Bidadi township in our FY09
ROI of 20%. DLF also has a 74:26 JV with Prudential Financial for life insurance and FY10 estimates
services.
DLF has entered into a 50:50 JV with Limitless Group, Dubai – a sister concern of
Nakheel Group – to develop Bidadi Township near Bangalore. DLF’s share of
development is approximately 125m sqft. The project is scheduled to begin in 2H08.
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Exhibit 19: DLF Partnerships

JV/ DLF's Business
Company acquisition stake segment Relationship
(%)
Laing O' Rourke JV 50 Construction LOR is a leading construction company in UK. LOR will provide DLF with
(LOR) construction expertise and the JV is currently developing 68% of DLF's
projects. The JV is open to work for other clients as well.
WSP JV 50 Construction WSP brings engineering and design expertise and project management
services. The specialist staff required to support the local contractors will be
provided by WSP.
Aman Resorts Acquisition 50 Luxury hotels Aman Resorts owns 18 boutique resorts worldwide.The JV plans to develop
5,000 luxury hotel rooms in next five years.
Prudential JV 74 & 39 Life insurance & DLF has tied up with Prudential Financial to provide life insurance and asset
Financial Inc Asset mgmt management services in India. The venture is part of DLF’s strategy to make
services optimum utilisation of its cash flows.
Hilton Group JV 74 Business hotels The JV plans to develop 20,000 rooms in next five years. The first JV hotel
(Hilton Garden Inn) is set to open in New Delhi by 2008.
Four Seasons LoI NA DLF Golf links Four Seasons will manage DLF Golf Links, a proposed luxury hotel in
Gurgaon. The hotel will have 230 rooms and will be open by end of 2010.
Limitless Group, JV 50 Townships The JV is setup to develop two mega township of almost 40,000 acres with an
Dubai initial investment of USD10b.
Gayatri Projects LoI NA Infrastructure The JV plans to bid for and develop infrastructure projects worth INR10b
every year with DLF-LOR as the contractor for the projects.
Fraport AG JV NA Airport Fraport AG is the owner and manager of Frankfurt airport. They plan to set up
DLF Fraport SPV which will explore opportunities in airport development in
India.
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VALUATION
We prefer to value earnings rather than assets

We believe the company has reached an inflection point with earnings becoming
the more crucial component rather than land bank acquisition. So we believe the
most appropriate way to value DLF will be on an earnings basis and use total
NAV as a directional guideline.
Price-earnings is a more accurate metric in our view

We believe the future stock-price appreciation of larger developers in India such as
DLF is going to be driven by earnings growth and not land bank acquisitions. The
company has reached a steady state in land bank acquisitions in our view and future
earnings will be used to replenish land bank addition.
What is an appropriate multiple to use?

We have valued the company by using one-year forward P/E multiple of 15x on our We have used a
FY10E EPS estimate of INR67.36. DLF currently trades at 10.7x FY09 EPS in conservative 15x P/E
multiple to value DLF.
comparison to peers at 15.9x FY09 EPS. We believe it is more appropriate to use a
Multiple expansion due to
conservative P/E multiple since we anticipate EBITDA margins falling to around 65% higher growth (excess of
as growth is driven by volumes in the middle-income residential segment. We 20%) is likely
anticipate EPS to grow at 26.4% CAGR over FY08-10, which we view as sustainable
given its low-cost land bank. Peers indicate higher growth due to a lower base.
Potential upside to our multiple exists because of DLF’s: 1) pan-India presence; 2)
execution ability; and 3) higher proportion of investment properties, which will benefit
from cap rate compressions.
In comparison to international peers, especially the China developers, larger China

developers are currently trading at 11.2x FY09E EPS. Furthermore, DLF also has a
significantly larger land bank (approximately 748m sqft.) in comparison to its Chinese
counterparts (highest being approximately 323m sqft. for China Vanke), which will
support higher valuations.
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Exhibit 20: Comparable Valuation

Share –——— Revenue –——— –———— EPS ————– EPS growth –———— P/E ————–
Security price —— Mkt cap— 07-08E 08-09E 09-10E 07-08E 08-09E 09-10E 08-09E 09-10E 09-10E 08-09E 09-10E
(USD) (LC m) (USD m) (USD m) (USD m) (USD m) (USD) (USD) (USD) (%) (%)
India
DLF* 15.17 1,034,407 25,642 3,296 4,818 5,709 1.05 1.42 1.67 35.4 17.9 14.5 10.7 9.1
Unitech* 6.65 431,061 10,686 1,072 1,747 2,427 0.27 0.38 0.52 39.8 38.4 24.6 17.6 12.7
Akruti City 22.35 59,640 1,478 117 233 779 0.75 2.14 6.26 186.6 192.9 30.0 10.5 3.6
Anant Raj Industries 5.72 62,950 1,560 225 350 736 0.31 0.73 1.25 133.1 72.3 18.4 7.9 4.6
HDIL 15.41 132,077 3,274 559 892 1,357 1.29 1.96 2.83 51.5 44.4 11.9 7.9 5.5
Indiabulls Real Estate 12.35 119,009 2,950 150 177 724 0.36 0.36 1.20 0.0 230.6 34.0 34.0 10.3
Omaxe 5.14 35,651 884 624 960 1,247 0.66 1.00 1.72 52.5 71.5 7.8 5.1 3.0
Parsvnath Developers 5.19 38,324 950 580 988 1,192 0.65 1.11 1.82 70.4 63.3 7.9 4.7 2.9
Phoenix Mills 10.05 54,523 1,352 54 91 121 0.16 0.20 0.29 24.2 41.5 61.4 49.4 34.9
Puravankara 7.18 61,285 1,519 185 353 568 0.28 0.57 0.89 106.2 56.7 26.1 12.7 8.1
Sobha Developers 16.85 49,129 1,218 403 583 867 0.80 1.17 1.94 46.1 65.4 21.0 14.3 8.7
Average 188,914 4,683 660 1,017 1,430 0.60 1.00 1.85 67.8 81.4 23.4 15.9 9.4
China
Large and regional developers
China Overseas 1.58 95,113 12,194 2,181 3,353 4,467 0.07 0.10 0.13 48.2 32.4 23.6 15.9 12.0
CR Land 1.49 46,860 6,008 783 1,499 2,530 0.04 0.08 0.13 107.6 61.6 38.2 18.4 11.4
Country Garden 0.84 107,322 13,759 2,341 3,666 5,718 0.03 0.05 0.08 60.3 42.2 25.5 15.9 11.2
Agile 1.00 29,254 3,750 1,365 2,043 2,632 0.07 0.10 0.13 56.2 30.2 15.3 9.8 7.5
Guangzhou R&F 2.38 18,803 2,411 2,920 4,354 5,964 0.23 0.30 0.33 31.6 12.0 10.5 8.0 7.1
Hopson 1.35 15,430 1,978 1,345 1,683 2,106 0.18 0.27 0.35 53.0 29.9 7.6 5.0 3.8
New World China 0.61 18,208 2,334 447 864 2,865 0.04 0.05 0.10 32.6 104.3 15.9 12.0 5.9
Shimao 1.66 38,981 5,490 1,451 2,567 3,599 0.14 0.18 0.25 26.3 40.1 11.8 9.3 6.7
Greentown 1.02 11,117 1,566 961 1,199 1,849 0.11 0.17 0.24 57.4 44.1 9.6 6.1 4.2
Average 42,343 5,499 1,254 1,930 2,885 0.08 0.12 0.16 52.6 44.1 17.6 11.2 7.8
Small and city developers

Guangzhou Inv 0.24 11,965 1,534 NA NA NA NA NA NA NA NA NA NA NA
Beijing Capital Land 0.53 3,093 436 1,034 1,454 2,051 0.07 0.09 0.11 30.2 17.9 6.2 4.7 4.0
Shanghai Forte 0.47 3,325 468 880 1,105 1,964 0.06 0.07 0.08 27.3 11.5 7.7 6.0 5.4
Beijing North Star 0.55 2,369 334 767 1,001 NA 0.03 0.04 NA 34.4 NA 14.8 11.0 NA
CC Land 1.02 14,753 1,891 141 328 896 0.00 0.02 0.14 385.3 545.5 200.3 41.3 6.4
Shanghai Real Estate 0.21 3,751 481 507 486 675 0.03 0.03 0.04 18.2 9.6 6.2 5.3 4.8
Average 6,542 857 666 875 1,397 0.04 0.05 0.09 99.1 146.1 47.0 13.7 5.2
Note: Local currency for Indian developers is INR, and for Chinese developers is CNY and HKD
Sources: DLF Ltd; company data; Bloomberg; BNP Paribas estimates
Our NAV estimate for DLF is INR804 per share

Our net asset value (NAV) for DLF’s core business (residential, commercial, retail and
hospitality) is INR804 per share. Our NAV calculation excludes the Bidadi Township,
asset management business and infrastructure venture. The key assumptions used in
arriving at our NAV calculation are shown below.
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Exhibit 21: NAV Assumptions

WACC (%) 15
Issued shares (m) 1,705
Tax rate (%) 20
Price growth (y-y %) 5
Cost growth (y-y %) 5
Cap rate (%) 9
Bookings (%) 100
Exhibit 22: NAV – Highly Sensitive To Price Increase, Project Delays And Bookings
———————— WACC ———————— ———————— WACC ————————
13.0% 14.0% 15.0% 16.0% 17.0% 13.0% 14.0% 15.0% 16.0% 17.0%
increase
Booking
8.0% 1,028 986 946 909 875 90% 764 734 705 679 654
Price
(%)
5.0% 870 836 804 775 746 95% 817 785 755 727 700
2.0% 733 706 680 656 634 100% 870 836 804 775 746
———————— WACC ————————

13.0% 14.0% 15.0% 16.0% 17.0%
1 767 730 695 663 633
Project
delays
0 870 836 804 775 746

(1) 987 958 930 904 879
Sources: Company reports; BNP Paribas estimates
Quarterly results likely to be lumpy

DLF recognises revenues on a percentage of completion method, and hence quarterly Focus on EPS rather than
results are likely to be lumpy. So, we prefer to look at the annual impact of results. But top-line numbers
since DLF discloses bookings and construction details, we encourage investors to
monitor the same on a quarterly basis. Due to the sale of a 49% stake in certain
residential projects, the top-line will include the 100% consolidated revenue number
with the 49% stake to be allocated from the minority interest line. Hence, it is
necessary to focus on EPS rather than top-line growth.
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APPENDIX 1
Devil’s advocate: Risks to our investment case

The property boom in India has led to growing concerns over unsustainable property-
price appreciation. Volumes in the premium segment have slowed down though pricing
has remained intact. Flow of institutional money (private equity and IPOs) has eased
the pressure on developers who have thus far maintained pricing. A prolonged
weakness in the market will impact volumes and pricing going forward. Other key risks
to the DLF story include:
DLF Assets listing in the Singapore REITs market

Delays in construction can negatively impact earnings
Slowdown in demand for residential real estate in India
Low float (approximately 12% of shares outstanding) increases stock volatility
Political and regulatory risks
Macro-economic risks including slowdown of GDP growth, higher interest rates,
higher taxation, credit slowdown
DAL listing remains a question market

DLF Assets (DAL) is a promoter-owned company that buys commercial properties
from DLF at a predetermined cap rate (9%). DLF has thus far sold approximately10m
sqft of commercial property to DAL. Approximately 30% (INR20b) of receivables of
DAL currently accounts for
DLF is from DAL. DAL proposes to pay DLF by listing its assets in a REIT-like
50% of total sales (9 months
structure in Singapore. But given the recent weakness in the Singapore REIT markets, ended Dec 07)
we believe DAL may find it difficult to list at an attractive yield. Hence the possibility of
DLF shareholders benefiting from cap rate compression seems unlikely. If the DAL
listing does not go through, the company will look at obtaining funding from private-
equity investors. We believe the longer-term implication is that DLF will have to scout
for new buyers for its commercial properties. We estimate commercial sales will
contribute approximately INR93.4b (49% of total) to FY09E sales.
Delays can hit earnings

Our channel checks indicate that DLF is facing three to six months delays in some of
its residential projects including Summit, Icon and Pinnacle in Gurgaon. Though we do
not currently see the construction delays affecting results significantly, any further
construction delays are expected to push back earnings since the company recognises
revenues on the percentage of completion of total costs. The company also anticipates
launching several new projects in FY09. Delays in new launches in excess of six
months will likely impact earnings.
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APPENDIX 2
Exhibit 2.1: Ongoing & Expected DLF Projects – Residential

Project City Type Saleable area Scheduled launch
(m sqft)
Bannerghatta road Bangalore Residential 9.00 FY09E
Garden City - OMR Chennai Residential 6.11 FY08
DLF Riverside Cochin Residential 0.52 FY08
Garden City, New Indore Indore Residential 1.04 FY08
Goa Goa Residential 2.49 FY08
Hyderabad Hyderabad Residential 11.41 FY09E
Tulsiwadi Mumbai Residential 0.89 FY09E
Kakkanad Cochin Residential 5.39 FY09E
New Town Heights Kolkata Residential 1.37 FY08
Chanakyapuri NCR - Delhi Residential 1.84 FY09E
DLF Park Place NCR – Gurgaon Residential 2.20 FY07
Magnolias NCR – Gurgaon Residential 2.50 FY06
The Belaire NCR – Gurgaon Residential 1.30 FY07
The Summit NCR – Gurgaon Residential 0.70 FY03
The Icon NCR – Gurgaon Residential 1.00 FY04
The Pinnacle NCR – Gurgaon Residential 1.10 FY03
The Royalton towers NCR – Gurgaon Residential 0.20 FY04
Panchkula Chandigarh Residential 7.90 FY08
Exhibit 2.2: Ongoing And Expected Projects – Commercial

(m sqft)
DLF Technopolis Bangalore Commercial 1.35 FY09E
DLF IT Park Chandigarh Commercial 0.65 FY08
DLF IT Park Chennai Commercial 6.64 FY08
Gurgaon Gurgaon Commercial 20.35 FY08
Hyderabad Hyderabad Commercial 6.95 FY08
DLF IT Park 1 Kolkata Commercial 1.17 FY08
DLF Pune, Hingewadi Pune Commercial 3.36 FY09E
Exhibit 2.3: Ongoing And Expected Projects – Retail

(m sqft)
Whitefield Bangalore Retail 0.72 FY09E
Gachibowli Hyderabad Retail 2.31 FY09E
NTC Mills Mumbai Retail 1.69 FY08
South Court, Saket NCR - Delhi Retail 0.34 FY08
The Galleria, Mayur Vihar NCR - Delhi Retail 0.16 FY08
Courtyard, Saket NCR – Delhi Retail 0.25 FY08
Jasola Mall NCR – Delhi Retail 0.84 FY08
Emporio, Vasant Vihar NCR – Delhi Retail 0.33 FY08
Promenade, Vasant Vihar NCR – Delhi Retail 0.45 FY08
DT City Center, Shalimar Bagh NCR – Delhi Retail 0.26 FY08
Mall of India NCR - Gurgaon Retail 3.93 FY08
South Point NCR – Gurgaon Retail 0.17 FY08
Star Mall NCR – Gurgaon Retail 0.22 FY08
Townsquare NCR – Noida Retail 1.52 FY08
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APPENDIX 3
Key company information

Exhibit 3.1: Industry Data Exhibit 3.2: Sales Breakdown – 9MFY08
Industry structure : Fragmented
Customers : DLF Assets account for 50% of sales currently
Competitors : Unitech, Emaar MGF, Parsvnath and Omaxe
Non - DAL DAL

Markets : Pan-India presence
50% 50%
Regulation : Medium
Source: BNP Paribas Source: DLF Ltd; BNP Paribas estimates
Exhibit 3.3: Ownership Structure Exhibit 3.4: Average Annual Cost Breakdown
Public
shareholding Land cost
11.8% 15.0%
Raw Wages
Promoter material 25.5%
and 59.5%
promoter
group
88.2%
DAL
Promoters PE Investors
Sources: DLF Ltd; BNP Paribas estimates Sources: DLF Ltd.; BNP Paribas estimates
Exhibit 3.5: Company Background Exhibit 3.6: Major Institutional Holders

DLF Ltd is India's largest real-estate developer with a land bank of Holder name % of outstanding shares
approximately 748m sqft. 81% of the company’s land bank is based in (%)
Metropolitan regions in the country. The company is present across T Rowe Price 1.42
all three real estate verticals including residential, commercial and Federated Investment 0.42
retail. DLF’s business model is based on selling residential properties DWS Investments 0.46
and selling/ leasing its commercial/retail properties. Aberdeen Investments 0.14
Capital International 0.08
Vanguard Group 0.08
SBI Fund Management 0.06
William Blair & Company 0.05
Nomura Asset Management 0.05
HSBC Investments 0.04
Sources: DLF Ltd; BNP Paribas Sources: Bloomberg; BNP Paribas estimates
23 BNP PARIBAS
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APPENDIX 4
Corporate governance
Exhibit 4.1: Corporate Governance Matrix
DLF Benchmark
Board
Size of the board 12 15
Percentage of independent directors on the board (%) 50 55
Director attendance at board meetings (%) 88 80
Number of other directorships and committee memberships held by CEO 1 3
CEO/MD and chairman role separation Yes Yes
Audit
Frequency of audit committee meetings (%) 4 4
Percentage of independent directors on the audit committee (%) 100 100
Compensation
Percentage of independent directors on the board (%) 100 100
Stock options being awarded to independent directors (%) 0 0
Ownership
Promoter group holding in company (%) 88 20
Cross holding across group companies (%) Yes No
Loan to subsidiaries Yes No

Number of sale/purchase transactions carried out by insiders 12 3
Number of outstanding shareholder complaints 1 0
Note: We have adjusted the data available for Infosys to create the benchmark
Data taken from annual report 07 for Infosys
All Data is as per the latest annual report available
Sources: Company reports; BNP Paribas estimates
Exhibit 4.2: Key Management Personnel

Key personnel Designation Description
Mr. K.P. Singh Chairman Mr. K.P. Singh has over 43 years of experience in the real estate industry. Prior to joining
DLF Mr. Singh served in the Indian Army. Mr. Singh was the president of The Associated
Chambers of Commerce and Industry in India (ASSOCHAM) in 1999.
Mr. Rajiv Singh Vice Chairman Mr. Rajiv Singh has over 25 years of experience in the real estate industry. He directs the
strategy and oversees the various Business Segments of the company. He holds a
degree in mechanical engineering from Massachusetts Institute of Technology, USA.
Mr. T.C. Goyal Managing Director Mr. Goyal has over 37 years of experience in finance and project counseling. He has
been with DLF since 1981. Prior to joining DLF he was working with the Birla Group.
Ms. Pia Singh Director Ms. Pia Singh heads DT Cinemas and is also engaged in the retail operations of the
company. Previously, she has worked with the risk undertaking department at GE
Capital. She is a graduate from the Wharton School of Business.
Mr. Kameshwar Swarup Executive Director - Mr.Swarup has over 44 years of management experience. He has worked as a senior
Legal member of the Delhi Stock Exchange of India and was also a member of various SEBI
committees. He is a post graduate from the University of Lucknow and a qualified
company secretary.
Mr. G.S. Talwar Director Mr. Talwar is founding Chairman and Managing Partner of Sabre Capital Worldwide, a
private equity and investment company. Mr. Talwar is the first Asian to have become the
Group Chief Executive of FTSE 25 company in the UK. He holds bachelor’s degree in
economics from St. Stephen’s College, University of Delhi.
Sources: DLF Ltd; BNP Paribas
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APPENDIX 5
Regulatory environment in India

The legal structure of the real-estate industry in India is two-layered. The first layer
consists of the laws developed by the central government and second is the state-level
laws. Some of the important central government laws are stated below:
Exhibit 5.1: Key Real-Estate Regulations

Act Overview Impact
The Urban Land The act limits the area that can be acquired by an entity in a Introduced use of Special Purpose Vehicle (SPV) structures
Ceiling Act, 1976 region so that the government can use the land for social to enable land aggregation.
and welfare schemes. The act has been repealed in most of
the states. Maharashtra was the most recent one.
Registration Act, The purpose of the act is to conserve evidence, assurances, In India clarity on the ownership of the land is a major
1908 title, publication of documents and prevention of fraud. concern. The registration act helps to provide clarity on the
ownership of the land.
The Indian Stamp duty is to be paid on all documents that are The high stamp duty encourages cash transactions in the
Stamp Act, 1899 registered, the percentage of stamp duty varies with each property market. Rationalization of stamp duties across
state (3% to 12%). Instruments that are not duly stamped states is an urgent issue that needs to be tackled.
are incapable of being admitted in court as evidence of the
transaction contained.
Source: Government of India
Special Economic Zones, Act, 2005 (SEZ): The SEZ act has been enacted for the
establishment, development and management of the SEZs for the promotion of
exports. An SEZ is specifically delineated duty-free enclave, deemed to be a foreign
territory for the purposes of trade as well as duties and tariffs. A Board of Approval
(BOA) has been set up by the Government to promote SEZs and ensure its orderly
development.
25 BNP PARIBAS
26
Exhibit 5.2: Procedure For Setting Up An SEZ By Developer
Procedure for setting up an SEZ
Application to the respective state government/BOA
45 days
BOA communicates the decision to the

Central Government
30 days
In-principal approval –
Formal approval
valid for 1 year
(if the land is acquired)
(if the land is not acquired)
Developer gets back to the Gol, Moc and Doc with

specific details of SEZ
If satisfied the Gol, Moc and Doc notifies the SEZ
Central Government appoint Development Commissioner

to monitor the SEZ
Note: BOA: Board of Approvals; GoI: Government of India; Moc: Ministry of Commerce; Doc: Department of Commerce
Sources: Government of India; BNP Paribas estimates
FDI Regulations: As per Press note 2 of 2005, FDI of up to 100% under the automatic
route is allowed in townships, housing, built-up infrastructure and construction
development projects. FDI is subject to the following conditions
Exhibit 5.3: Minimum Area To Be Developed

Minimum area
Development of serviced housing plots 10 hectares
Construction-development projects Built up area of 50,000 sqm
Combination of the above two Any of the above two
Exhibit 5.4: Minimum Capitalisation Requirement

Minimum capital
(USD m)
Wholly owned subsidiaries 10
JV with Indian partners 5
Further, the funds are to be bought in within six months of the business. Original
Investment is not to be repatriated before a period of three years from completion of
minimum capitalisation. The investor is permitted to exit earlier with prior approval of
the government through the Foreign Investment Promotion Board (FIPB). At least 50%
of the project should be completed within five years. The investor would not be
permitted to sell undeveloped plots.
26 BNP PARIBAS
27
FINANCIAL STATEMENTS
DLF Ltd
Profit and Loss (INR m)
Year Ending March 2006A 2007A 2008E 2009E 2010E
Revenue 19,602 40,533 132,960 194,374 230,302
Cost of sales ex depreciation (9,286) (7,278) (33,057) (59,844) (70,923) Residential sales will
Gross profit ex depreciation 10,317 33,255 99,903 134,530 159,378 contribute
Other operating income - - - - - approximately 50% to
Operating costs (1,572) (4,199) (7,527) (8,093) (10,015)
FY10 sales
Operating EBITDA 8,745 29,056 92,375 126,437 149,363
Depreciation (358) (578) (593) (726) (837)
Goodwill amortisation - - - - -
Operating EBIT 8,387 28,478 91,783 125,711 148,526
Net financing costs (1,685) (3,076) (2,825) (3,696) (4,620)
Associates - - - - -
Recurring non operating income - - - - -
Non recurring items - - - - -
Profit before tax 6,702 25,402 88,957 122,015 143,906
Tax (2,590) (6,052) (16,875) (24,403) (28,781)
Profit after tax 4,112 19,350 72,083 97,612 115,125
Minority interests (10) (11) (63) - -
Preferred dividends - - - - -
Other items 8 (2) 51 - -
Reported net profit 4,110 19,336 72,071 97,612 115,125
Non recurring items & goodwill (net) - - - - -
Recurring net profit 4,110 19,336 72,071 97,612 115,125
Per share (INR)
Recurring EPS * 2.69 12.64 42.17 57.11 67.36
Reported EPS 2.69 12.64 42.27 57.26 67.53
DPS - - - - -
Growth
Revenue (%) - 106.8 228.0 46.2 18.5
Operating EBITDA (%) - 232.3 217.9 36.9 18.1
EBITDA margins to
Operating EBIT (%) - 239.6 222.3 37.0 18.1
Recurring EPS (%) - 370.4 233.5 35.4 17.9 decline to 65% by 2010
Reported EPS (%) - 370.4 234.4 35.4 17.9 due to higher middle-
income sales
Operating performance
Gross margin inc depreciation (%) 50.8 80.6 74.7 68.8 68.8
Operating EBITDA margin (%) 44.6 71.7 69.5 65.0 64.9
Operating EBIT margin (%) 42.8 70.3 69.0 64.7 64.5
Net margin (%) 21.0 47.7 54.2 50.2 50.0
Effective tax rate (%) 38.7 23.8 19.0 20.0 20.0
Dividend payout on recurring profit (%) - - - - -
Interest cover (x) 5.0 9.3 32.5 34.0 32.1 Tax rates to remain at
Inventory days 346.1 1645.1 934.5 803.3 950.9
20% due to SPV-based
Debtor days 122.5 97.4 97.8 123.7 132.0
Creditor days 574.7 1197.3 352.9 234.1 258.8 structure
Operating ROIC (%) 30.9 22.5 31.5 26.7 23.5
Operating ROIC - WACC (%) 14.0 5.6 14.5 9.8 6.6
ROIC (%) 21.2 19.4 28.5 24.4 22.0
ROIC - WACC (%) 4.3 2.4 11.6 7.5 5.0
ROE (%) 81.9 84.8 62.8 40.2 33.0
ROA (%) 15.1 17.1 28.3 25.1 22.8
* Pre exceptional, pre-goodwill and fully diluted
Key Assumptions (INR m) 2006A 2007A 2008E 2009E 2010E

Annual price growth (%) 5.00 5.00
Average const. cost (INR 1500 - 3000)
Maintenance margins 20.00 20.00
Estimated project duration (2-3 yrs)
Tax rate 20.00 20.00
Revenue By Division (INR m) 2006A 2007A 2008E 2009E 2010E
Residential - Sales 69,463 119,558
Commercial - Sales 93,414 65,592
Retail - Sales 18,365 23,790
Lease and Maintenance 11,751 19,582
Others 19,602 40,533 132,960 1,381 1,780
27 BNP PARIBAS
28
Cash Flow (INR m)

Recurring net profit 4,110 19,336 72,071 97,612 115,125
Depreciation 358 578 593 726 837
Associates & minorities 10 11 63 - -
Other non-cash items - - - - -
Recurring cash flow 4,478 19,926 72,726 98,338 115,962
Change in working capital - (79,504) (114,512) (86,361) (94,708)
Capex - maintenance - - - - -
Capex - new investment (6,467) (21,620) 1,738 (29,094) (8,058)
Free cash flow to equity (1,989) (81,199) (40,047) (17,117) 13,196
Net acquisitions & disposals - - - - -
Dividends paid (16) (18) (7,978) - -
Non recurring cash flows (15,384) 15,908 (13,206) - -
Net cash flow (17,388) (65,308) (61,231) (17,117) 13,196
Equity finance - 5 88,665 - -
Debt finance 31,987 67,509 (6,925) - -
Movement in cash 14,599 2,205 20,509 (17,117) 13,196
Per share (INR)
Recurring cash flow per share 2.93 13.03 42.66 57.68 68.02
FCF to equity per share (1.30) (53.09) (23.49) (10.04) 7.74
Balance Sheet (INR m)
Working capital assets 26,182 124,188 236,373 337,914 441,242
Working capital liabilities (14,621) (33,124) (30,796) (45,976) (54,596)
Net working capital 11,561 91,065 205,577 291,938 386,646
Tangible fixed assets 24,799 41,851 52,027 80,395 87,616
Operating invested capital 36,359 132,916 257,604 372,333 474,262
Goodwill 8,500 8,935 16,223 16,223 16,223
Other intangible assets - - - - -
Investments 8,149 2,107 13,489 13,489 13,489
Other assets 3 - - - -
Invested capital 53,011 143,958 287,316 402,045 503,974
Cash & equivalents (1,950) (4,155) (24,664) (7,547) (20,743)
Short term debt - - - - -
Long term debt * 41,320 99,327 92,403 92,403 92,403
Net debt 39,371 95,172 67,739 84,856 71,660
Deferred tax 183 197 463 463 463
Other liabilities 3,364 12,948 21,139 21,139 21,139
Total equity 10,038 35,549 194,132 291,744 406,869
Minority interests 54 92 3,843 3,843 3,843
Invested capital 53,011 143,958 287,316 402,045 503,974
* Includes convertibles and preferred stock which is being treated as debt
Per share (INR)
Book value per share 265.02 23.24 113.87 171.13 238.65
Tangible book value per share 40.62 17.40 104.35 161.61 229.14
Financial strength DLF has one of the
Net debt/equity (%) 390.1 267.0 34.2 28.7 17.4
lowest debt/equity
Net debt/total assets (%) 56.6 52.5 19.8 18.6 12.4
Current ratio (x) 1.9 3.9 8.5 7.5 8.5 ratios amongst Indian
CF interest cover (x) 3.7 (18.4) (13.8) 4.2 5.6 real estate companies
Valuation 2006A 2007A 2008E 2009E 2010E
Recurring P/E (x) * 225.6 48.0 14.4 10.6 9.0
Recurring P/E @ target price (x) * 375.8 79.9 24.0 17.7 15.0
Reported P/E (x) 225.6 48.0 14.3 10.6 9.0
Dividend yield (%) - - - - -
P/CF (x) 207.1 46.5 14.2 10.5 8.9
P/FCF (x) neg neg neg neg 78.3
Price/book (x) 2.3 26.1 5.3 3.5 2.5
Price/tangible book (x) 14.9 34.8 5.8 3.8 2.6
EV/EBITDA (x) ** 7.1 18.7 11.5 8.8 7.5
EV/EBITDA @ target price (x) ** 8.9 29.6 18.6 14.3 12.1
EV/invested capital (x) 1.2 7.1 3.8 2.8 2.2
* Pre exceptional, pre-goodwill and fully diluted
** EBITDA includes associate income and recurring non-operating income
28 BNP PARIBAS
29
India Research Team

Praveen Chakravarty Preeti Dubey, CFA Karan Gupta
Head of India Research Metals & Mining Metals & Mining (Associate)
BNP Paribas India Solutions Pvt Ltd BNP Paribas India Solutions Pvt Ltd BNP Paribas India Solutions Pvt Ltd
(91 22) 6650 1696 (91 22) 6650 1671 (91 22) 6650 1662
praveen.chakravarty@asia.bnpparibas.com preeti.dubey@asia.bnpparibas.com karan.gupta@asia.bnpparibas.com
Vishal Sharma Shashank Abhisheik Sandeep Mathew

Infrastructure - E&C Infrastructure - E&C (Associate) Real Estate
(91 22) 6650 1672 (91 22) 6650 1673 (91 22) 6650 1665
vishal.sharma@asia.bnpparibas.com shashank.abhisheik@asia.bnpparibas.com sandeep.mathew@asia.bnpparibas.com
Avneesh Sukhija Lakshminarayana Ganti Charanjit Singh

Real Estate (Associate) Capital Goods/Cement Capital Goods/Cement (Associate)
(91 22) 6650 1667 (91 22) 6650 1676 (91 22) 6650 1686
avneesh.sukhija@asia.bnpparibas.com lakshminarayana.ganti@asia.bnpparibas.com charanjit.singh@asia.bnpparibas.com
Girish Nair Sriram Somayajula Amit Shah

Utilities Utilities (Associate) Oil & Gas
(91 22) 6650 1679 (91 22) 6650 1670 (91 22) 6650 1664
girish.nair@asia.bnpparibas.com sriram.somayajula@asia.bnpparibas.com amit.shah@asia.bnpparibas.com
Alok Deshpande Abhiram Eleswarapu Avinash Singh

Oil & Gas (Associate) Tech - IT Tech - IT (Associate)
(91 22) 6650 1663 (91 22) 6650 1684 (91 22) 6650 1685
alok.deshpande@asia.bnpparibas.com abhiram.eleswarapu@asia.bnpparibas.com avinash.singh@asia.bnpparibas.com
Sameer Naringrekar Kunal Vora, CFA Vijay Sarathi, CFA

Tech - Telecom Tech - Telecom (Associate) Financial Services
(91 22) 6650 1674 (91 22) 6650 1675 (91 22) 6650 1677
sameer.naringrekar@asia.bnpparibas.com kunal.d.vora@asia.bnpparibas.com vijay.sarathi@asia.bnpparibas.com
Abhishek Bhattacharya Joseph George Manish A Gupta

Financial Services (Associate) Consumer Consumer (Associate)
(91 22) 6650 1678 (91 22) 6650 1669 (91 22) 6650 1668
abhishek.bhattacharya@asia.bnpparibas.com joseph.george@asia.bnpparibas.com manish.a.gupta@asia.bnpparibas.com
29 BNP PARIBAS
30
NOTES
30 BNP PARIBAS
31
NOTES
31 BNP PARIBAS
32
NOTES
32 BNP PARIBAS
33
NOTES
33 BNP PARIBAS
34
NOTES
34 BNP PARIBAS
35
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Recommendation structure
All share prices are as at market close on 13 March 2008 unless otherwise stated. Stock recommendations are based on
absolute upside (downside), which we define as (target price* - current price) / current price. If the upside is 10% or more, the
recommendation is BUY. If the downside is 10% or more, the recommendation is REDUCE. For stocks where the upside or downside
is less than 10%, the recommendation is HOLD. In addition, we have key buy and key sell lists in each market, which are our most
commercial and/or actionable BUY and REDUCE calls and are limited to at most five key buys and five key sells in each market at
any point in time.
Unless otherwise specified, these recommendations are set with a 12-month horizon. Thus, it is possible that future price volatility
may cause a temporary mismatch between upside/downside for a stock based on market price and the formal recommendation.
*In most cases, the target price will equal the analyst's assessment of the current fair value of the stock. However, if the analyst
doesn't think the market will reassess the stock over the specified time horizon due to a lack of events or catalysts, then the target
price may differ from fair value. In most cases, therefore, our recommendation is an assessment of the mismatch between current
market price and our assessment of current fair value.
Sector recommendations are based on: OVERWEIGHT – Sector coverage universe fundamentals are improving. NEUTRAL – Sector
coverage universe fundamentals are steady, neither improving nor deteriorating. UNDERWEIGHT – Sector coverage universe
fundamentals are deteriorating.
© 2008 BNP Paribas Group
35 BNP PARIBAS
36
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37
DLF
India Equity Research | Real Estate Result Update
DLF INR 813
Growth intact; attractive valuation BUY

DLF’s Q3FY08 results were in line with our expectations both in terms of revenues and
EBITDA margins. However, net profit was higher than our expectations primarily due to February 1, 2008
lower interest charges and tax rates. Revenue grew at 11% Q-o-Q to INR 36 bn against
INR 32.5 bn and EBITDA margins grew at 10.5% Q-o-Q to INR 25 bn against INR 23 bn. Akshit Shah
+91-22-4019 4714
Net profit was up 6% Q-o-Q at INR 21 bn against INR 20 bn. The company has invested akshit.shah@edelcap.com
in wind power and benefits from thereon have resulted in tax depreciation, which in turn Sachin Sharma
has led to lower tax provision at 13% against 28% in Q1FY08. +91-22-4019 4510
sachin.sharma@edelcap.com
Outlook and valuations: Attractive; upgrade to BUY

We are reducing DLF’s tax rate to 20% against 30% earlier. This is due to the lower
taxation rate attracted by the company in the past two quarters and the guidance from the
management for the years to come.
We continue to believe that being the industry leader with a huge quality land bank, DLF is
among the best companies in the listed real estate space in India. We have valued its
existing land bank at INR 843 per share. While valuing commercial and retail properties, we
have capitalized lease rentals at a discounted cap rate of 9%, which takes into account
part benefit from the listing of the REIT. Further benefit of cap rate compression could be Reuters : DLF.BO
higher, but to incorporate the additional benefit we would like to wait for the listing of its
Bloomberg : DLFU IN
REIT. Also, we have applied 50% probability discount to its SEZ business due to lack of
visibility on the land acquisition process. We have valued other businesses together at INR
Market Data
148 per share. The company’s total NAV comes to INR 1,607 bn or INR 943 per share.
52-week range (INR) : 1,225 / 505
Shares in issue (mn) : 1,704.8
At current market price of INR 813, the stock is trading at 14% discount to its current NAV. Its
M cap (INR bn/USD mn) : 1,385 / 35,177
REIT launch plans in Singapore are on track and we expect it to be launched in the near
Avg. Daily Vol. BSE/NSE (‘000) : 5,737.9
future, which will help the company to reduce cap rates for its lease earning properties. The
stock has corrected by more than 17% since our last update and we believe this is a good
buying level. Therefore, we are upgrading our recommendation to “BUY” from
Share Holding Pattern (%)
“ACCUMULATE”.
Promoters : 88.2
MFs, FIs & Banks : 0.5
FIIs : 7.9
Others : 3.4
Financials
Year to March Q3FY08 Q2FY08 % change FY07 FY08E FY09E
Net rev (INR mn) 35,984 32,499 10.7 26,152 114,898 170,673
EBITDA (INR mn) 25,014 22,637 10.5 14,953 79,219 119,467
Net profit (INR mn) 21,389 20,182 6.0 19,437 60,509 94,143
EPS (INR) 12.6 11.8 6.4 11.4 35.5 55.2
P/E (x) - 71.3 22.9 14.7
EV/EBITDA (x) - 99.5 18.1 12.1
ROE (%) 79.1 61.1 46.9
Edelweiss research is also available on Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.
1
38
DLF
Segmental snapshot
Residential business
Aggressive launch of mid income housing projects in second half of Q3FY08 with primary
focus on Chennai, Indore, and Kolkata.
The New Town Heights in Rajarhat witnessed aggressive absorption; it was sold out with in
four days of its launch.
Selling prices of the luxury housing category increased.
New tools like one house per family and one year lock in period were used to cut down
speculative demand.
Commercial segment
Aggressive growth in area under construction; it increased by 16% and 35% over Q2FY08
and Q1FY08, respectively.
On track to achieve lease volume target of 12 mn sq ft per annum.
Average lease rates have dropped over the past quarter by more than 30%, primarily due
to change in location.
Hotel segment
Management has identified 51 hotel sites compared to 39 in the previous quarter.
The first Hilton Garden Inn is set to open in Saket (New Delhi) by end 2008.
4,000 hotel rooms expected to be operational by FY10 end with a long term target of
25,000 hotel rooms in the next six-seven years.
International Convention Centre at Dwarka, New Delhi, is in advanced stage of design and
development.
Acquisition of “Aman” gives a significant thrust to the hotels business unit, with a strong
international footprint.
SEZ business
Five SEZs got notified, aggregating to 27 mn sq ft.
Six SEZs have been sent for final approval.
Land acquisition for both Manesar and Ambala SEZs is in progress.
For Goa, land acquisition process has just begun.
New land acquisition
DLF added 26 mn sq ft during the quarter, adding 748 mn sq ft compared to 738 mn sq ft

in the previous quarter. The new acquisitions were as follows:
Hyderabad Raidurg: Acquired two parcels of 26 and 30 acres of and.
Adjoining site of Chennai IT Park: Acquired 1.73 acres site adjoining Chennai IT
Park.
32 milestone : Executed collaboration agreement for 10.45 acres for new site at
Village Silokhera Gurgaon.
39
DLF
Table 1: Total land reserve (mn.sq.ft)

Super metros Metros Tier-I Tier-II Total % of total
Segment
Office 53 71 21 6 151 20.2
Retail 31 35 13 9 88 11.8
Super luxury 4 0 0 0 4 0.5
Luxury 40 6 1 0 47 6.3
Mid income /Villas /Plots 129 230 67 14 440 58.8
Hotel / Convention centre / Service apt. 7 4 4 2 17 2.3
Grand total 265 346 106 31 748 -
% of total 35.4 46.3 14.2 4.1
Source: Company
During the quarter, DLF has injected money through private equity by selling 49% stake i.e., 37
mn sq ft.
Table 2: Reconciliation of land bank with Q2FY08 (mn.sq.ft)

Super Metros Metros Tier-I Tier-II Total
Land reserves as per Q2 FY08 257 333 105 43 738
Area developed & sold (4) (2) - - (6)
Area atributable to partners ( Merill & Brahma ) - (30) (5) (2) (37)
Business preposition / product mix changed 8 39 (11) (10) 26
New acquisitions- during Q3 4 5 17 - 26
Land reserves as per Q3 FY08 265 346 106 31 748
Source: Company
Sales to DAL
Sales to DAL still remain a concern as sales as a percentage to total sales have gone up
consistently. They have risen from 41% in Q1 to 56% in Q3. Management is confidant on the
same and has set a target of bringing it below 20% by FY10E.
Table 3: Sales break up (%)

DAL Non-DAL
Q1FY08 41.4 58.6
Q2FY08 53.0 47.0
Q3FY08 56.3 43.7
Source: Company
Outlook and valuations: Attractive; upgrade to ’BUY’

Our some-of-the-parts valuation of DLF is INR 1,606 bn or INR 943 per share. While valuing the
commercial and retail properties, we have capitalized lease rentals at a discounted cap rate of
9%, which takes into account part benefit due to listing of the REIT. Further benefit of cap rate
compression can be higher, but to incorporate the additional benefit we would wait for the
listing of the REIT. Also, we have applied 50% probability discount to its SEZ business due to
lack of visibility on the land acquisition process.
40
DLF
Table 4: SOTP valuations

Existing business (INR mn) 1,436,568
Hotel business (INR mn) 57,859
Construction busines (INR mn) 18,464
SEZ business (INR mn) 176,173
Total NPV (INR mn) 1,689,064
Unpaid land cost (INR mn) 30,000
Discount years 2
NPV of unpaid land cost (INR mn) 23,574
Cash (INR mn) 84,915
Debt (INR mn) 143,032
Total NAV (INR mn) 1,607,373
No of shares (mn) 1,705
NAV per share 943
Source: Edelweiss research
At current market price of INR 813, the stock is trading at 14% discount to its current NAV. The
REIT launch plans are on track and we expect it to be launched in the near future, which will help
the company reduce the cap rate. The stock has corrected by more than 17% since our last
update and we believe this is a good buying level. Therefore, we are upgrading our
recommendation to “BUY” from “ACCUMULATE”.
Financials snapshot (INR mn)

Year to March Q3 FY08 Q2 FY08 % change FY07 FY08E FY09E
Income from operations 35,984 32,499 10.7 26,152 114,898 170,673
Direct costs 9,512 8,326 14.2 7,090 34,215 47,460
Employee costs 609 606 0.4 - - -
Other expenses 850 930 (8.6) 4,109 1,464 3,746
Total operating expenses 10,970 9,863 11.2 11,199 35,679 51,206
EBITDA 25,014 22,637 10.5 14,953 79,219 119,467
Depreciation and amortisation 148 110 35.1 571 769 1,691
EBIT 24,866 22,527 10.4 14,382 78,450 117,776
Interest expenses 788 36 2,064.0 3,076 14,303 17,164
Other income 528 993 (46.8) 14,189 11,490 17,067
Profit before tax 24,606 23,484 4.8 25,495 75,637 117,679
Provision for tax 3,218 3,301 (2.5) 6,058 15,127 23,536
Reported profit 21,389 20,182 6.0 19,437 60,509 94,143
Adjusted net profit 21,389 20,182 6.0 19,437 60,509 94,143
Shares outstanding 1,705 1,705 - 1,705 1,705 1,705
Dividend per share - 3.5 5.5
Dividend payout (%) - 10.0 10.0
41
DLF
Company Description
DLF, incorporated in 1963, is one of the largest real estate development companies in India, with
focus on residential, retail, and commercial construction activities. The company is promoted by Mr.
K.P. Singh who has four decades of experience in the Indian real estate industry. DLF went public in
2007 with the issue of ~175 mn shares at INR 525 per share.
Investment Theme
Default play on real estate in India
DLF is the leader in the Indian real estate industry in terms of developable area. Its land bank of 748
mn sq. ft. of saleable area spread across the country. DLF’s land cost of INR 250 per sq. ft. is
marginal compared to prevailing land prices. The company has an established presence across all
property development verticals, with a balanced project portfolio.
Related businesses - to enhance value
DLF has entered into tie-ups in related businesses with some of the best names in their respective
industries. For its SEZ initiative, DLF has tied up with Nakheel, one of the leading property developers
in the UAE; for hotels, it has a partnership with the Hilton Group; and for construction, it has tied up
with the UK-based Laing O’Rourke Plc. We expect DLF’s SEZ and hotel businesses to start adding
to its topline in the next 3–4 years; the value of these initiatives is, however, not captured in current
valuations.
Compressing cap rates – increasing valuations
Retail and commercial properties in India are currently capitalised at 9–10%. DLF has filed with
Singapore stock exchange for listing its REIT like structure which we feel will help the company to
reduce the capitalization rate for its lease earning properties.
Key Risks
We estimate DLF to complete its ongoing projects within 12-13 years, though the management
expects to complete these projects in next 10 years. Till March 2007, DLF has developed and sold
224 mn sq. ft., representing 35-40% of company’s future plans. We believe that the company has
the execution capabilities and will be able to deliver the same. However, timely completion of these
projects will continue to remain a strong execution challenge for the company. Any delay in the
execution of projects will put strain on cash flows and valuation, and will hamper the company’s
growth prospects.
DLF, for its SEZs, needs to acquire huge land bank, mainly in Gurgaon (20,000 acres). We have
taken the complexity into account and taken 19-20 years to complete all four SEZs. We think this is
sufficient time for such a big developer to acquire the land and complete the project. However, if the
company does not get the land, then valuation of the business will suffer, as 13% of the valuation
comes from SEZ only.
42
DLF
Financial Statements
Income statement
Year to March FY05 FY06 FY07 FY08E FY09E
Income from operations 6,081 11,536 26,152 114,898 170,673
Direct costs 3,165 5,243 7,090 34,215 47,460
Other expenses 1,234 1,536 4,109 1,464 3,746
Total operating expenses 4,399 6,779 11,199 35,679 51,206
EBITDA 1,682 4,757 14,953 79,219 119,467
Depreciation and amortisation 333 361 571 769 1,691
EBIT 1,349 4,396 14,382 78,450 117,776
Interest expenses 390 1,685 3,076 14,303 17,164
Other income 179 884 14,189 11,490 17,067
Profit before tax 1,138 3,595 25,495 75,637 117,679
Provision for tax 259 1,668 6,058 15,127 23,536
Reported profit 879 1,927 19,437 60,509 94,143
Shares outstanding 1,704.8 1,704.8 1,704.8 1,704.8 1,704.8
Dividend per share - - - 3.5 5.5
Dividend payout (%) - - - 10.0 10.0
Common size metrics- as % of net revenues

Operating expenses 72.3 58.8 42.8 31.1 30.0
Depreciation 5.5 3.1 2.2 0.7 1.0
Interest expenditure 6.4 14.6 11.8 12.4 10.1
EBITDA margins 27.7 41.2 57.2 68.9 70.0
Net profit margins 14.5 16.7 74.3 52.7 55.2
Growth metrics (%)

Year to March FY06 FY07 FY08E FY09E
Revenues 89.7 126.7 339.3 48.5
EBITDA 182.8 214.3 429.8 50.8
PBT 215.9 609.2 196.7 55.6
Net profit 119.2 908.7 211.3 55.6
EPS 119.2 908.7 211.3 55.6
Cash flow statement (INR mn)

Net profit 879 1,927 19,437 60,509 94,143
Add: depreciation 333 361 571 769 1,691
Gross cash flow 1,212 2,288 20,008 61,278 95,834
Less: Dividends - - - 6,051 9,414
Less: Changes in W. C. (5,535) 8,589 67,025 57,748 32,055
Operating cash flow 6,747 (6,301) (47,017) (2,520) 54,364
Less: Capex 5,460 7,194 25,400 6,800 72,039
Free cash flow 1,287 (13,495) (72,417) (9,320) (17,674)
43
DLF
Balance sheet (INR mn)

As on 31st March FY05 FY06 FY07 FY08E FY09E
Equity capital 35 378 12,557 12,907 12,907
Reserves & surplus 7,436 9,123 27,115 145,460 230,189
Shareholders funds 7,471 9,501 39,672 158,367 243,096
Minority interest 43 54 92 92 92
Borrowings 9,676 41,320 99,328 119,194 143,032
Sources of funds 17,190 50,875 139,092 277,653 386,221
Gross block 8,253 13,023 17,787 36,995 60,554
Depreciation 1,549 1,891 2,412 3,181 4,871
Net block 6,704 11,132 15,375 33,815 55,683
Capital work in progress 3,506 5,911 26,497 14,089 62,568
Total fixed assets 10,210 17,043 41,872 47,903 118,251
Goodwill 522 8,489 8,935 8,935 8,935
Investments 400 8,300 2,107 2,107 2,107
Inventories 7,049 16,409 57,006 109,621 157,087
Sundry debtors 2,852 6,580 15,195 0 0
Cash and equivalents 424 1,950 4,155 78,750 84,915
Loans and advances 6,039 10,665 52,438 55,060 57,813
Total current assets 16,364 35,604 128,794 243,431 299,815
Sundry creditors and others 8,383 15,095 33,450 3,545 9,937
Provisions 961 3,374 8,979 21,178 32,950
Total CL & provisions 9,344 18,469 42,429 24,723 42,887
Net current assets 7,020 17,135 86,365 218,708 256,928
Net deferred tax (962) (92) (187) 0 0
Uses of funds 17,190 50,875 139,092 277,653 386,221
Book value per share (BV) (INR) 4 6 23 93 143
Ratios
ROE (%) 11.8 22.7 79.1 61.1 46.9
ROCE (%) 8.9 15.5 30.1 43.2 40.6
Current ratio 1.8 1.9 3.0 9.8 7.0
Debtors (days) 171 208 212 - -
Fixed assets t/o (x) 0.6 0.8 0.9 2.6 2.1
Debt/Equity 1.2 4.1 2.4 0.3 0.2
Valuations parameters
EPS (INR) 0.5 1.1 11.4 35.5 55.2
Y-o-Y growth (%) - 119.2 908.7 211.3 55.6
CEPS (INR) 346.3 60.5 15.9 47.5 74.2
P/E (x) 1,576.8 719.3 71.3 22.9 14.7
Price/BV (x) 185.5 145.9 34.9 8.8 5.7
EV/Sales (x) 229.4 122.8 56.9 12.5 8.5
EV/EBITDA (x) 829.3 297.9 99.5 18.1 12.1
44
DLF
Edelweiss Securities Limited, 14th Floor, Express Towers, Nariman Point, Mumbai – 400 021, Board: (91-22) 2286 4400, Email: research@edelcap.com
Naresh Kothari Co-Head Institutional Equities naresh.kothari@edelcap.com +91 22 2286 4246
Vikas Khemani Co-Head Institutional Equities vikas.khemani@edelcap.com +91 22 2286 4206
Shriram Iyer Head Research shriram.iyer@edelcap.com +91 22 2286 4256
Coverage group(s) of stocks by primary analyst(s): Real Estate:

DLF and The Phoenix Mills
DLF Recent Research
1325 Date Company Title Price (INR) Recos
1165 31-Jan-08 The Phoenix Fundamental intact; 2,023 Buy

1005 Mills Result update
Buy
Accm
(INR)
845 Buy 31-Jan-08 Emaar Immense potential; 540-630 Subscribe

MGF Land IPO Note
685 Buy
14-Jan-08 The Phoenix India consumption 2,290 Buy
525 Mills boom play; Initiating
Jul-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Nov-07
Dec-07
Jan-08
Coverage
09-Jan-08 Ganesh Hsg. Spreading tentacles; 712 Not Rated

Corporation Visit Note
Distribution of Ratings / Market Cap Rating Interpretation

Edelweiss Research Coverage Universe
Rating Expected to
Buy Accumulate Reduce Sell Total
Buy appreciate more than 20% over a 12-month period
Rating Distribution* 110 43 15 2 188
Accumulate appreciate up to 20% over a 12-month period
* 12 stocks under review / 6 rating withheld
Reduce depreciate up to 10% over a 12-month period
> 50bn Between 10bn and 50 bn < 10bn
Market Cap (INR) 88 74 26 Sell depreciate more than 10% over a 12-month period
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Copyright 2007 Edelweiss Research (Edelweiss Securities Ltd). All rights reserved
8
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Table of Contents

Rpt. 13252330 DLF LTD 2 - 37

Rpt. 13098313 DLF LTD 38 - 45

These reports were compiled using a product of Thomson Financial. www.thomson.com/financial

 DLF is at an inflection point

 Premium valuations Current Price.... INR606.25 Negative .....................................1

Sandeep Mathew (91 22) 6650 1665

DLF is setting new benchmarks in the real-estate industry in India, such

Please see the important notice on the inside back cover.

Residential segment will be the focus ........................................................................... 5

DLF warrants premium valuation................................................................................... 8

Likely beneficiary of industry consolidation.................................................................. 10

Quality land bank limits downside risks ....................................................................... 11

Strong execution capability.......................................................................................... 13

We prefer to value earnings rather than assets........................................................... 18

2. DLF Projects list 22

3. Key company information 23

5. Regulatory environment in India 25

Financial statements – P&L, Balance sheet and Cash flow ........................................ 27

Please see India Research Team list on page 29.

Flow of institutional capital to accentuate real

 Has India witnessed a major real-estate asset cycle?

*2007-08 figure is as of Dec’07

Has India witnessed a major real-estate asset cycle?

Institutional money will introduce ‘deep and

Dealing with asset cycles

Residential segment will be the focus

Middle-income segment will be the key growth driver

Exhibit 2: Housing Shortages

Sources: National Housing Board; BNP Paribas estimates

Exhibit 3: Growing Middle Income Segment

Exhibit 4: Current Middle-Income Residential Projects

Driving volumes through aggressive pricing

Exhibit 5: DLF Sale Prices vs Competitors

(INR/sqft) Current (INR/sqft) Expected

Sources: DLF Ltd; BNP Paribas estimates

With steady margin gains

Pricing in line with affordability rates of middle-income groups

Exhibit 6: Affordability Levels Across Middle-Income Segment

IT/ITES slowdown will have a minimal impact on this segment

Exhibit 7: IT/ITES Contribution To Middle-income Growth

Exhibit 8: Salary Increase Survey

(y-y %) Top 5 industries indicating the highest salary increases

Source: Hewitt Salary Increase Survey (2007-08)

DLF warrants premium valuation

Monetisation of stake: More is not necessarily better

Exhibit 9: Early Monetisation Of Stake Enhances Return

Source: BNP Paribas estimates

Catering to demands of investors – increasing

Exhibit 10: Quarterly Disclosures By DLF Increase Visibility

For sale business

For lease business

Likely beneficiary of industry consolidation

 Tight bank lending norms to the sector causing a credit crunch

Tightening of credit within the segment

DLF’s low leverage positions it strongly in the industry

Exhibit 11: Peer Group Comparison

Price wars hurting smaller developers

Quality land bank limits downside risks

Sufficient land banks to last for another 15 years

Assessing land bank quality

Exhibit 12: Ownership Status

DLF is at an inflection point

Premium valuations Current Price.... INR606.25 Negative .....................................1

Has India witnessed a major real-estate asset cycle?

Tight bank lending norms to the sector causing a credit crunch

DLF Assets listing in the Singapore REITs market