DLF : Daring Leap of Faith

By Ramesh Akkineni
from an article in Financial Express
Consider some comparisons: If the DLF issue is able to raise in excess of Rs 10,500 crore, it would value DLF over Rs 1 lakh crore. Promoter KP Singh’s 87% stake would be worth over Rs 87,000 crore ($18 billion). In comparison, the world’s richest Indian, LN Mittal, is valued at $20 billion (Rs 92,000 crore).
But that’s where the outlandish similarity between notional wealth ends and the ridiculousness of such comparisons begins, as other parameters reveal wide dissonance. By last record, Mittal Steel chairman LN Mittal had global assets of $19.4 billion (Rs 89,240 crore). DLF’s assets are Rs 6,915.1 crore ($1.5 billion). Mittal Steel’s 2005 revenues were $28.1 billion (Rs 1,29,260 crore). DLF’s 2005-06 revenues were Rs 1259.1 crore ($273.72 million).
According to Bloomberg data, at the projected valuation of Rs 1 lakh crore ($21.7 billion), DLF will be the fifth most valuable real estate company in the world, behind Mitsubishi Estate, Japan ($30.54 billion), Emaar Properties, UAE ($27.3 billion), Cheung Kong, Hong Kong ($24.89 billion) and Sun Hung Kai Pro, Hong Kong ($24.67 billion). These companies have annual revenues ranging between $2 to $7 billion. DLF’s 2005-06 revenues were $273 million.
Now, compare the ratios. The projection of raising at least Rs 10,500 crore for 20.2 crore shares leads to a minimum price of Rs 520 (for every Rs 2 share). If the London-based news agency is to be believed, it would begin at Rs 797 per share.
DLF’s current capital of Rs 37.8 crore (March 31, 2006), when divided into Rs 2 equity shares, works out to an earnings per share (EPS) of Rs 10.53 (DLF quotes adjusted EPS at Rs 12.84). Expectation of between Rs 520 to Rs 797 per share amounts to a price/earning (P/E) multiple of 49.38 to 75.7 per share. In comparison, the P/E multiple of India’s entire construction industry is 39.78 (DLF quotes peer group P/E at 49.9). The P/E multiple of Nifty 50 companies is 18.11.
India’s most valuable company, the Oil and Natural Gas Corporation (ONGC) at Rs 1.47 lakh crore has an EPS of Rs 106 and a P/E of just 9.7. The most valued private sector company, Reliance Industries, at Rs 1.24 lakh crore has an EPS of Rs 65.06 and a P/E of 13.8.

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