| DLF Limited | ||||||
| 'CRISIL AA/Stable' assigned to Non Convertible Debentures | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has assigned its ‘CRISIL AA/Stable’ rating to the non convertible debentures (NCD) of DLF Limited (DLF) and reaffirmed its ratings on the bank facilities at ‘CRISIL AA/Stable/CRISIL A1+’.
The rating continues to reflect the strong sales booking and substantial increase in the cashflows on the back of healthy demand momentum, new launches, DLF’s strong market position and execution track record. Financial risk profile will remain healthy despite expected increase in the debt levels for strategic acquisitions, and will be aided by strong financial flexibility.
DLF registered sales of Rs. 13,316 crore (including JVs) in nine months of fiscal 2024 as against the sales booking of Rs 15,058 cr in full year FY2023. The strong performance is supported by highest ever quarterly sales of 9,047 crore in Q3FY2024 from the new launch of its luxury project - Privana, which was entirely sold within few days of launch resulting in Rs. ~7200 crore of sales. The collections remained robust and stood at Rs 6,449 crore in nine months of fiscal 2024 as against Rs 5,650 crore in full year 2023. It is further expected that the collections will remain robust in the medium term.
Healthy sales have lead to significant quantum of committed receivables of ~Rs. 19,000 crore as on Dec, 2023 and healthy launch pipeline of ~10 million square feet (msf) in FY2025 that will provide further upside to cash flows and support construction cost over tenure of launched projects.
The company’s gross debt reduced to Rs. 2,948 crore in December 2023 as against Rs 3,068 crore in March 2023. However, it is expected that the debt levels will increase by end of fiscal 2024, exceeding CRISIL’s earlier estimates owing to company’s strategic acquisition plans. Consequently, the financial risk profile will be moderated as characterised by increase in the total debt to assets by end of fiscal 2024, though the same is expected to improve by fiscal 2025. The company emphasises to focus on debt reduction over the medium term. Any deviation from the debt reduction trajectory and any material debt funded acquisition will be key monitorable.
In the development business under DLF, liquidity is supported by cash and bank balance of Rs 4,194 crore (majority of which is earmarked for project development in RERA accounts) and committed receivables of Rs 19,000 crore against the pending construction outflow of Rs 9,757 crore as on December 31, 2023.
The cash flow of DLF would also continue to be supported by the dividend income received from DLF Cyber City Developers Ltd (DCCDL; rated ‘CRISIL AA/Positive’; joint venture [JV] of DLF with GIC; DLF has two-third stake in DCCDL), the rental arm of the group.
These strengths are partially offset by susceptibility to risks and cyclicality inherent in the real estate sector along with large contingent liabilities and pending litigation. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of DLF and its subsidiaries and associates because of their strong operational and financial linkages. Furthermore, CRISIL Ratings continues to moderately consolidate DCCDL to the extent of economic incentive it draws. With the settlement of assets and inter-party payables between the two entities in fiscal 2020, the debt and cash flow of DCCDL remain ring-fenced. Both the entities have an independent management, with no cross-guarantees/securities provided by either (except for a few specific assets, where the underlying land is with DLF); DLF and GIC have some affirmative rights for decisions taken at DCCDL. CRISIL Ratings continues to factor in the dividend that DLF would receive from DCCDL on account of its shareholding in DCCDL.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.. |
Key Rating Drivers & Detailed Description Strengths: Substantial and sustained increase in the sales bookings and cash flows along with strong market position, aided by large, low-cost land bank and economies of scale DLF registered sales of Rs. 13,316 crore (including JVs) in nine months of fiscal 2024 as against the sales booking of Rs 15,058 cr in full year FY2023, significantly exceeding earlier estimates. The strong performance is supported by highest ever quarterly sales of 9,047 crore in Q3FY2024 from the new launch of its luxury project – Privana, which was entirely sold at the time of launch resulting Rs. 7,200 crore of sales. The collections remained robust and stood at Rs 6,449 crore in nine months of fiscal 2024 as against Rs 5,650 crore in full year 2023.
DLF has an established track record in the domestic real estate sector across segments and regions. It is a well-recognised brand, with the most extensive track record among private developers. Its strong brand name has given it the ability to sell projects at an early stage of construction.
Additionally, the large, low-cost land bank, with a development potential of 187 million square feet (msf), spread across India out of which about 57 msf is already identified for development in prime locations, underpins the company’s strong market position, supports profitability and lends a significant competitive advantage over other real estate developers.
Healthy financial risk profile despite expected increase in the debt levels for strategic acquisitions Healthy financial risk profile despite expected increase in the debt levels for strategic acquisitions. The company’s gross debt reduced to Rs. 2,948 crore in December 2023 as against Rs 3,068 crore in March 2023. However, it is expected that the debt levels will increase by end of fiscal 2024, exceeding CRISIL’s earlier estimates owing to company’s strategic acquisition plans. Consequently, the financial risk profile will be moderated as characterised by increase in the total debt to assets by end of fiscal 2024, though the same is expected to improve by fiscal 2025.The company emphasises to focus on debt reduction over the medium term.
Out of the outstanding gross debt of Rs. 2,945 crore as on December 31, 2023, ~34% is lease rental discounting (LRD) debt against its commercial assets’ portfolio, having a long tenure of 10 years and spread out repayment obligations thereby reducing burden on overall cash flows of DLF. In the development business under DLF, liquidity is supported by cash and bank balance of Rs 4,194 crore (majority of which is earmarked for project development in RERA accounts) and committed receivables of Rs 19,000 crore against the pending construction outflow of Rs 9,757 crore as on December 31, 2023. The company emphasises to focus on debt reduction over the medium term. Any deviation from the debt reduction trajectory and any material debt funded acquisition will be key monitorables.
Furthermore, gradual sales of the finished inventory will continue to support the cash flow over the medium term while the rental and hospitality portfolio would continue to contribute approximately Rs 250 crore annually. DLF also has certain projects under development in JV companies, debt for which is not consolidated. While these projects are expected to be incrementally funded out of their own collections and sanctioned debt limits, limited support from DLF is expected in the near term. Furthermore, the management has plans to launch some more projects in JVs over the medium term – of which some have already been launched.
Strong financial flexibility Financial flexibility is driven by annual dividend expected from DCCDL which supports the cash flow of the company. DLF also has a track record of raising funds from national and international investors, banks and financial institutions further providing liquidity cushion. Cash flows are also supported by the portfolio of leased assets and large land bank. Rental income of DLF, including DCCDL, stood at Rs 4,200 crore in fiscal 2023 against Rs. 3,544 crore in fiscal 2022.
Weaknesses: Exposure to inherent risks and cyclicality in the real estate industry and risk of geographical concentration in revenue profile Cyclicality in the real estate segment causes fluctuations in cash inflow. As against this, cash outflow towards projects and debt obligation are relatively fixed, resulting in substantial cash flow mismatch. Any decline in the pace of sales in the could lower expected collections in the medium term. Furthermore, occupancy levels and rental rates remain susceptible to economic downturns, which could constrain the tenant's business risk profile and rental collections.
Additionally, DLF’s reliance on Gurgaon’s real estate market has been high and in case of any significant slowdown in demand or oversupply in the region, future revenues will be impacted. However, the company is slowly focusing on geographical diversification and has re-entered Chennai after 10 years also have planned launches across Goa, Gurgaon and Tricity. However, the extend of geographical diversification in the revenue profile will remain a key monitorable.
Large contingent liabilities and pending litigations The group has significant contingent liabilities because of matters related to income tax and service tax along with indemnities provided to DCCDL and penalty imposed by the Competition Commission of India (CCI) in 2011 (for which DLF has already deposited Rs 630 crore with the Supreme Court towards the CCI penalty). Most of the matters are longstanding and have shown limited progress, and some amounts have been deposited pending resolution. While there has been no crystallisation of liabilities, the matters will be resolved in due course and, nonetheless, would remain closely monitored. |
Liquidity: Strong Liquidity is supported by cash and bank balance of around Rs 4,194 crore (majority of which is earmarked for project development in RERA accounts) and committed receivables of ~Rs 19000 crore against the pending construction outflow of Rs 9757 crore as on December 31, 2023. Utilisation of fund based bank lines (sanctioned limit of Rs 3878 crore) averaged 50% and non fund based limits (sanctioned limit of ~Rs. 1241 crore) averaged 60% during the 12 months ended December 31, 2023. Financial flexibility is supported by a track record of raising funds from national and international investors, banks and financial institutions and from a portfolio of leased assets and a large land bank. Cash accrual, cash and equivalents and unutilised bank lines should be sufficient to meet the debt obligation as well as incremental capital expenditure (capex) and working capital requirement. For the rental business under DCCDL, cash accrual is healthy, backed by a steady rental portfolio and amortised repayment structure of the debt. CRISIL Ratings continues to factor in the annual dividend that DLF will receive from DCCDL to further cushion liquidity.
ESG profile The environment, social and governance (ESG) profile of DLF supports its strong credit risk profile. The real estate sector has a significant impact on the environment as a result of high emissions, waste generation and impact on land and biodiversity. The impact on social factors is indicated by labour-intensive operations and safety issues on account of construction-related activities. DLF has an ongoing focus on strengthening various aspects of its ESG profile.
Key ESG highlights:
There is growing importance of ESG among investors and lenders. The company’s commitment to ESG principles will play a key role in enhancing stakeholder confidence given its high foreign portfolio investor shareholding and access to capital markets. |
Outlook: Stable CRISIL Ratings expects DLF is likely to generate healthy cash flow through new launches, liquidation of inventory while continuing to benefit from its strong committed receivables of Rs 19,000 crore and strong market position. |
Rating Sensitivity Factors Upward factors
Downward factors
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About the Company DLF is one of the oldest and largest real estate companies in India. It has a diverse asset portfolio across the real estate segment and is further expanding its presence across the country. The company has experience in developing real estate projects across business and customer segments.
DLF, on a standalone basis, will continue to focus on luxury and premium housing (independent floors) and commercial projects in the near term, which are short gestation projects. The company has launched multiple such projects in the Gurugram market; these projects have been well received. A few commercial projects in a similar build-and-sell model would also be pursued.
For the nine months ended December 31, 2023, DLF reported profit after tax (PAT) of Rs 1,803 crore on operating income of Rs 4,641 crore against Rs 1,470 crore and Rs 4,436 crore, respectively, for the corresponding period of the previous fiscal. |
Key Financial Indicators: DLF (Consolidated*)
*CRISIL Ratings adjusted numbers |
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Yet to be placed &Total limit of SBI is Rs.415 crs (Fund Based Rs.315 Crs and Non Fund Based Rs.100 Crs). Non Fund Based limit is interchangeable with fund based limits ^Out of Rs.1000 Crs of ICICI WC limit, Rs.200 Crs is interchangeable with Non Fund Based Limits |
Annexure - List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||
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&Total limit of SBI is Rs.415 crs (Fund Based Rs.315 Crs and Non Fund Based Rs.100 Crs). Non Fund Based limit is interchangeable with fund based limits
^Out of Rs.1000 Crs of ICICI WC limit, Rs.200 Crs is interchangeable with Non Fund Based Limits
Criteria Details
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