DLF Ltd.: India's Leading Real Estate Company in Trouble
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Case Code: BSTR382 Case Length: 27 Pages Period: 2005-2010 Pub Date: 2010 Teaching Note: Not Available |
Price: Rs.600 Organization: DLF Limited Industry: Real Estate Countries: India Themes: Corporate Restructuring , Turnaround Strategies |
Abstract Case Intro 1 Case Intro 2 Excerpts
"Who would have imagined a year back that one of the country's largest developers would teeter on the brink of insolvency? As the economy shifted into a higher gear and the markets burst to meteoric highs, realty firms were among the most buoyant. But that's distant history"
- Outlook Profit, June 12, 2009.
In Real Trouble?
As on June 12, 2010, DLF Limited (DLF), India's largest real estate company, had accumulated an outstanding debt of more than US$31002 million, marginally below the record high of US$3635 million in the month of March 2009. The net profit of the company also plunged by more than 60%, falling from US$993.25 million in financial year 2008-2009 to US$384.44 million in financial year 2009-2010. In addition to decreasing profits, DLF was struggling with an enormous outstanding debt and a high debt to equity ratio which stood at around 0.70 in the month of June 2010. To reduce its debt burden, DLF was considering selling 97% of its stake in Aman Resorts, a hotel chain it had acquired in November 2007 for about US$400 million5, to Khazanah.
If completed, this deal was expected to release between US$300 million and US$350, helping DLF cut its heavy debt pile. The company was also implementing many other strategies with an eye on reducing its debt burden and managing its cash flow efficiently. According to analysts, DLF had been doing well since liberalization and had witnessed strong growth as a private company in the growing Indian economy. It went public in July 2007 with one of the biggest IPOs (Initial Public Offering) in India. DLF raised capital of more than US$2 billion to further strengthen its growth. This made it the eighth most valuable company in India and its promoters, KP Singh and his family, the fourth richest Indians, just behind the two Ambani brothers7 and Lakshmi Mittal.
It was expected that after this IPO, DLF would be able to grow much faster and change growing Indian real estate sector, which was growing rapidly along with the Indian economy. The funds raised from the IPO enabled DLF to reduce its prevailing debt and acquire additional land to develop properties in the years to come. However, the global financial crisis in 2008 created a grim situation, and hampered the anticipated growth of DLF.....
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