| DLF Limited | ||||||
| Long-term rating upgraded to 'CRISIL AA/Stable'; Short-term rating reaffirmed | ||||||
| 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 upgraded the rating on the long term bank facilities of DLF Limited (DLF) at ‘CRISIL AA/Stable’ from ‘CRISIL AA-/Positive’ and reaffirmed the short term rating at ‘CRISIL A1+’
The upgrade in rating reflects improvement in business risk profile driven by all-time high sales booking, substantial liquidation of inventory, healthy launch pipeline and steady receivables. Further, financial risk profile of DLF has also strengthened marked by continued deleveraging and strong financial flexibility.
DLF registered sales of Rs. 6,060 crore (excluding JVs) in nine months of fiscal 2023, crossing the sales booking of Rs. 5320 crore last fiscal, driven by a healthy demand momentum, strong launch pipeline, and liquidation of unsold inventory. The strong demand momentum can also be seen from DLF’s, exceptional sales booking of Rs. ~8,000+ crore in Q4 FY23 from its latest Arbour launch.
The total area sold in 9M of fiscal 2023 was 4.25 msf (excluding JVs) compared to 3.2 msf (excluding JVs) during the same period last fiscal. Company has also sold ~4 msf of luxury apartments in Q4 FY23, significantly exceeding earlier estimates.
Liquidation of inventory of Rs. 5,198 crores as on Dec, 2022 along with receipt of pending receivables of around Rs. 6792 crore as on Dec, 2022 from sales that have already been made will provide further stability to the cash flow, support construction costs and maintain debt at low levels.
The company has further reduced gross debt from Rs. 3,900 crore in fiscal 2022 to Rs. ~3,100 crore estimated by fiscal 2023, due to prepayment of debt on account of strong collections. Consequently the debt/total assets is expected to reach 0.13 time in fiscal 2023 from 0.18 time the preceding fiscal and is expected to moderate further next fiscal.
Out of the outstanding gross debt of Rs. 3,840 crore as on December 31, 2022, ~33% is lease rental discounting (LRD) debt against its commercial assets’ portfolio, which further reduces burden on overall cash flows of DLF. The LRD debt is expected to reach ~40% of the outstanding debt by the end of this fiscal. In the development business under DLF, liquidity is supported by cash and bank balance of Rs 1,749 crore as on December 31, 2022. The company emphasises to continue with its focus on debt reduction over the medium term.
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/Stable’; 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:
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. The recent luxury group housing launch in Gurugram, Arbour, witnessed exceptional sales worth Rs. 8,000+ crores within few days of launch in Q4 of fiscal 2023.
Additionally, the large, low-cost land bank, with a development potential of 187 million square feet (msf), spread across India out of which about 35 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.
The company has significantly reduced gross debt from Rs. 6,510 crore in fiscal 2021 to Rs. ~3,100 crore expected in fiscal 2023 due to prepayment of debt on account of strong collections. The debt/total assets is expected to reduce from 0.18 time in fiscal 2022 to 0.13 times in fiscal 2023 and is expected to fall further next fiscal. Out of the outstanding gross debt of Rs. 3,840 crore as on December 31, 2023, ~33% is lease rental discounting (LRD) debt against its commercial assets’ portfolio, which further reduces burden on overall cash flows of DLF. The LRD debt is expected to reach ~40% of the outstanding debt by the end of this fiscal. DLF has emphasised to continue with its focus on debt reduction over the medium term. Any deviation from the debt reduction trajectory will be a key monitorable.
Furthermore, gradual sales of the finished inventory will continue to support the cash flow over the medium term while the rental portfolio of 2.1 msf 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 in fiscal 2023.
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 3,544 crore in fiscal 2022 against Rs. 3231 crore in fiscal 2021.
Weaknesses:
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 inventory of Rs. 5,198 crore as on December 2022 could lower collections. 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 & successfully launched projects in Delhi, Panchkula and also have planned launches across Goa and Mullanpur. However, the extend of geographical diversification in the revenue profile will remain a key monitorable.
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 1,749 crore as on December 31, 2022. Utilisation of fund based bank lines (sanctioned limit of Rs 2,732 crore) averaged 70% and non fund based limits (sanctioned limit of Rs. 975 crore) averaged 46% during the 12 months ended December 31, 2022. 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 in the absence of any large, debt-funded capex and pursuit of short-cycle projects while continuing to benefit from its 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. An aggregate of 15-20 msf is planned across Gurugram, Chennai and the tricity area (Chandigarh, Panchkula and Mohali). A few commercial projects in a similar build-and-sell model would also be pursued.
For the nine months ended December 31, 2022, DLF reported profit after tax (PAT) of Rs 1,464 crore on operating income of Rs 4,239 crore against Rs 1,095 crore and Rs 4,170 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)
&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
As on 31st Dec, 2022 |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 29-Mar-23 in line with the lender-wise facility details as on 03-Feb-23 received from the rated entity.
&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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