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Strategic Management
On
DLF India Ltd.
Submitted to-
Dr. Devang Desai
Submitted by-
• Prakhar Beohar AP17261
• Abhishek Kumar AP17264
• Faraaz Mohd. Khan AP17298
• Nehal Paunikar AP17284
INTRODUCTION
The DLF Group, is India's largest real estate company in terms of revenues, earnings, market
capitalization and developable area. It has a 62-year track record of sustained growth, customer
satisfaction, and innovation. The group has over 231 msf of completed development and 423
msf of planned projects, and has pan India presence across 32 cities.
DLF's primary business is development of residential, commercial and retail properties. The
company has a unique business model with earnings arising from development and rentals. Its
exposure across businesses, segments and geographies, mitigates any down-cycles in the
market. DLF has also forayed into the infrastructure, SEZ and hotel businesses.
The business of DLF is organized on a SBU basis. The Homes SBU caters to 3 segments of the
residential market - Super Luxury, Luxury and Mid-Income. The product offering involves a
wide range of products including condominiums, duplexes, row houses and apartments of
varying sizes. DLF has 214 msf of developed area under homes and residential plots. Currently,
DLF has more than 319 msf of land resource targeted towards residential business.
The Office SBU took DLF across the country, predicated on the customer demand for office
space at different geographic locations. Nearly 17 msf of ongoing projects forms a strong
portfolio for DLF offices.
The Retail Mall's and Commercial Complexes SBU is a major thrust area for DLF. Currently,
DLF is actively creating new shopping and entertainment spaces all over the country. The
company has 12 msf of retail projects and commercial complexes under construction.
DLF Hotels has also entered into a JV with Hilton to set up a chain of business hotels and
service apartments across India. DLF holds 74% and Hilton holds 26% equity in the JV.
DLF has a strong management team running independent businesses, though complementing
each other in cases of opportunities of mixed land use. DLF's mission is to build a world-class
real estate development company with the highest standards of professionalism, ethics and
customer service and to thereby contribute to and benefit from the growth of the Indian
economy.
DLF’s SBU
DLF Vision
To contribute significantly to building the new India and become the world’s
most valuable real estate company.
DLF Mission
To build world-class real-estate concepts across six business lines with the
highest standards of professionalism, ethics, quality and customer service
DLF Values
The following map illustrates the locations of our developments, projects and lands across
India-
Corporate Governance
Code of Conduct
1. Introduction
DLF Limited and its subsidiaries (‘hereinafter referred to as the ‘Company’) is a leading
professionally managed Company emerging as the one of the foremost enterprises in real estate
development. It has over 60 years of experience, an established brand name, a highly
experienced, qualified and motivated management team with a high reputation for project
execution. The formation and management of many subsidiary and partnership companies is
considered necessary in real estate development to ensure effective governance in dealing with
legal and commercial requirements.
The Company’s philosophy on Corporate Governance is built on a rich legacy of fair,
transparent and effective governance. This includes respect for human values, individual dignity
and adherence to honest, ethical and professional conduct. This enables customers and all stake
holders to be partners in the Company’s growth and prosperity.
The Company’s Code of Conduct not only ensures compliance with the Company Law,
the provisions of the listing agreement with Stock Exchanges and other laws, but goes beyond to
ensure exemplary Corporate Governance. Accordingly, the Board of Directors of DLF Limited
have adopted the following code that details the following:
2. Objective
This code of conduct document has been created in furtherance of the Company’s commitment
to building a strong culture of corporate governance by promoting the importance of ethical
conduct and transparency in the conduct of its operations. This code lays down the standards of
conduct that shall apply to its Directors and all Employees of the Company and shall come into
force with effect from 21st day of March, 2007.
3. Definitions
The definitions of some of the key terms used in this Code are given below
i. “Director” means any Executive, Non-Executive, Nominee or Alternate Director of the
Company.
ii. “Employee” means any employee or officer of the Company.
iii. “Relative” means ‘relative’ as defined in Section 2(41) and Section 6 read with schedule
1A of the Companies Act, 1956.
iv. “Senior Management” means personnel of the Company who are members of its Core
Management team excluding the Board of Directors and shall include all personnel above
the level of Vice-President and all function heads.
4. Applicability
This Code is applicable to the following:
a. All Employees of the Company including Senior Management; and
b. All Directors of the Company.
This Code does not address every possible form of unacceptable conduct and it is expected that
the Directors and the Employee shall apply their sound judgment to comply with the principles
set forth in the Code.
5. Standards of Conduct
The Directors and employees shall conduct the Company's business in an efficient and
transparent manner in meeting its obligations towards the shareholders and other stakeholders.
The Directors and employees shall not be involved in any activity that would have any adverse
effect on the objectives of the Company or against national interest. The following elucidates the
Company’s position on the manner of conduct of the Company’s business and transactions:
b) Conflict of Interest
Conflicts of interest may appear where on account of either on undertaking or in the act of
influencing a business transaction, relationship, or an activity, the Director or Employee is in a
position to derive a personal benefit for himself or for a relative or a related party (as described
in the Companies Act,
1956). It includes instances where the independent judgment of such a Director or Employee to
work towards the best interests of the Company may be or perceived to be impaired.
In case of an Employee, where such conflict appears at any time or is in existence at the
time of the implementation of this policy, such Employee shall forthwith make a disclosure in
writing to the Chief Executive (Corporate Affairs), who in turn shall compile such disclosures
for review by the Corporate Governance Committee. Upon review by the Corporate Governance
Committee, the Employee may be directed to avoid/resolve the conflict or to take such remedial
action as is deemed suitable by the Corporate Governance Committee.
A Director shall disclose any potential conflicts of interests to the Board of Directors or
any Committee thereof and abstain from participating in the decision making or in influencing
the decision on the areas resulting in the potential conflict of interest in accordance with the
applicable rules under the Companies Act. In addition, the Director shall provide on a periodic
basis, such disclosure as is required by the Board of Directors or any Committee thereof.
c) Business opportunities
The Directors and Employees are hereby prohibited from taking for themselves personally, any
opportunities that are discovered through the use of Company’s property, information or position,
unless the opportunity is disclosed fully in writing to the Corporate Governance Committee and the
Corporate Governance Committee authorizes the said Director or the Employee to pursue such
opportunity. The Directors and Employees are also prohibited from competing directly with the
business of the Company.
e) Insider Trading and fraudulent & unfair practices in the securities market
A Director or the Employees and their relatives shall not derive any benefit or assist others to
derive any benefit from the access to and possession of information about the Company, which is
not in the public domain and thus constitutes insider information. They shall also ensure
compliance with SEBI (Prohibition of Insider Trading) Regulations, 1992 as also other
regulations as may become applicable to them from time to time in addition to the Company’s
Policy for Prevention of Insider Trading.
The Company also prohibits its Directors and Employees in undertaking any fraudulent
or unfair trade practice in connection with the securities of the Company.
i) Competition
DLF is committed to a fair and competitive free market system. The Directors and Employees of
the Company are prohibited to take any action that are anti-competitive or otherwise contrary to
laws that govern competitive practices in the marketplace.
j) Public Representation
It may be necessary to communicate information relating to the Company, its operations and
performance to its stake-holders, media, stock-exchanges etc. In all its public appearance with
respect to disclosing any information in relation to the Company’s activities or performance to
any public constituency such as the Media, financial community etc, the Company shall be
represented only by duly authorized personnel. This policy establishes that matters relating to
public representation of the Company shall be handled by the Chairman or Vice-Chairman or the
Managing Director or the Head of Corporate Communications department (or such person to
whom the Head of Corporate Communications has delegated his authority) or such persons as
are authorized by the Board of Directors or the Chairman. In addition, the Chief Financial
Officer is duly authorized to make suitable public representation in relation to financial matters.
Where a Director or an Employee seeks to publish a book, article or manuscript containing
reference to the Company or its business/processes, such person should obtain prior approval of
the Corporate Governance Committee. The Committee may grant such approval on terms and
conditions that it may deem fit such as pre-review/changes to such publication by the
Committee, inclusion of disclaimers etc.
k) Confidentiality of Information
Any information concerning the Company’s business, its customers, suppliers, etc. to which the
Directors or the employees have access or which is possessed by the Directors and the
employees, must be considered privileged and confidential and should be held in confidence at
all times, and should not be disclosed to any person, unless
m) Electronic Usage
Electronic resources provided to the Directors and Employees by the Company should only be
used for the conduct of the Company’s business. The Company prohibits any uses which are
illegal or infringe on the privacy of a person or result in the transmission of inappropriate
messages. The Company also reserves the right to monitor electronic usage and files on the
system as and when deemed necessary.
In conclusion, with early signs of recovery currently reflected by the drop in unemployment rate,
easing liquidity and aggressive government initiatives to pull back the sector, increased activity
in the real estate sector should be expected.
➢ DLF’S STRENGTH AND WEAKNESS
STRENGTH
o DLF has a sizable presence across several key cities (Delhi NCR, Mumbai, Bangalore,
Chennai, Kolkata, Chandigarh, Goa etc) and clear market leadership position in
commercial, retail, and lifestyle/premium
o apartments. These segments are highly profitable and have significant entry barriers.
The estimated market share at ~16% in commercial offices and ~8% in retail space
absorption in India over the next 2 years.
o Commercial, retail, luxury and premium housing account for 67% of DLF's estimated
Gross
o Asset Value (GAV). Middle income housing segment accounts for just 24% of DLF’s
GAV (56% of the development area). This segment is more susceptible to emerging
macro concerns and challenges, and thus even 50% lower absorption v/s estimates
would impact GAV by ~11%
o DLF’s current land bank stands at 13,055 acres (addition of 2,800 acres since filing of RHP)
and total developable area at 612m sq ft (addition of 43m sq ft). Recent land bank addition of
~2,800 acres has been done at Rs19.3b (average cost of Rs230/sq ft, assuming FSI of 1x).
For DLF, land cost stands at Rs154b, i.e. an average of Rs252/sq ft, which provides
competitive advantages.
o Large companies such as DLF, which have holding power, are best positioned to take
large bets by acquiring large tracts of contiguous land, which could create value through
‘land bank ageing’ and ‘integrated development’. It is believed that this strategy will
generate better returns, which would lead to continuous upgrade in NAVs and allow for
higher asset turnover.
o Successful implementation of monetization strategies will lead to lower capital costs and
create conditions for building integrated property business models, comprising property
development, re-development, acquisitions, divestitures, leasing and management
WEAKNESSES
DLF due to its predominant positioning in the commercial office, retail and premium
apartment segments is relatively less vulnerable to the emerging macro challenges. We believe
that a significant part of the concerns pertaining to the sector are getting compounded in middle
income housing segment, which is more sensitive to prices and higher interest rates.
• Macroeconomic risks:
Any weaker-than- expected GDP growth for the domestic economy could negatively affect
sentiment of buyers, leading to elusive demand, which could render sales and earnings estimates
for DLF unrealizable. Also, any further tightening measures and policy changes by the
government (with regard to mortgage applications and approvals, project financing, and property
pre-sales) to curb speculation
and overinvestment could adversely affect the bottom lines and cash flows of property
developers and sentiment of home buyers
Conservatively, we have assumed ‘NO’ price increase in the NCR region for apartments during
FY08-17 and for commercial and retail during FY08-FY12. From FY13, we have assumed a
price CAGR of 5% in commercial and retail space in NCR. Other than NCR we have assumed
stagnant prices for all projects and all verticals (residential, commercial and retail) for FY08 and
FY09. Given the sharp acceleration in real estate prices over the past three years, there exists a
real probability of a price correction in certain pockets. Also, NCR region still accounts for 42%
of the development area for the company, thus exposing it to significant price movements in the
region.
DLF’S COMPETITORS
New rivals
Bombay Dyeing, Golden Tobacco and Century Textiles. There has been a precedent with groups
like Tata, Mahindra and Godrej having turned developers. The Tata group has Tata Housing and
Tata Realty while Mahindra’s venture is called Mahindra Lifespace Developers. Godrej’s
venture goes by the name of Godrej Properties.
A prominent case is that of Bombay Dyeing, a well known player in the textile business. While it
has entered the real estate business, it does not have a separate company in place.
3}Leveraging its real estate capabilities in related areas be it special economic zones or
hospitality.
The company will primarily be a developer and sell its properties retaining limited assets to be
leased out. The money raised through the IPO would go towards buying more land (Rs 3,500
crore -- Rs 35 billion), developing existing projects and repayment of loans.
Going by the scale of development done so far, DLF is the largest real estate player in the
country with land reserves of 10,255 acres or about 574 million square feet (msf) of
developmental area. Of this, 171 msf is located in or near developed urban areas while 404 msf
is urbanisable.
"About 90 per cent of the total land bank is available as large contiguous plots enabling large
integrated development", says, chief executive officer Rajiv Singh.
After being centered around Delhi for many years, the company now has a nation-wide presence
across 31cities and towns. It has developed 29 msf of residential, commercial and retail projects
and integrated townships spread over 3,000 acres in Gurgaon so far. Currently, some 44 msf of
development is under progress and projects involving 524 acres is planned over the next few
years.
The company intends to focus on its core competence while partnering with leading global
players such as Nakheel (SEZs), Laing O'Rourke (construction), ESP (engineering and design),
Feedback Ventures (project management) for better execution.
Right from acquiring low cost land to creating a full fledged township to realise the true potential
of the land, DLF has amply demonstrated its success in Gurgaon. One key advantage is that
DLF's average cost of acquisition of land is fairly low at around Rs 274 per sf which will enable
it sit out the cycles and not indulge in distress sale ever.
Some key determinants of profitability for real estate companies apart from the land cost, is the
developer's land acquisition and aggregation skills, relationship with the state authorities and
reputation -- on all these DLF scores highly.
And with its unquestionable capabilities as a successful developer, DLF seems best placed to
capitalise on the booming real estate market, which is expected to grow at 20 per cent-plus
annually from the current size of $40-45 billion.
Even more, the national capital region, where the company has over 50 per cent of its land
holdings, is among the fastest growing markets in the country.
Apart from the boom in retail malls and residential owning to rising disposable income, there are
several new vistas opening up for developers which DLF is planning to tap -- for instance, SEZs
which offer opportunities to create integrated townships, hotels and serviced apartments,
multiplexes, airports and the list goes on.
According to a newly devised strategy, the company would, instead of leasing out commercial
projects, indulge in outright sale to potential buyers including DAL. This model rests on the
ground that DAL would be able to garner low cost capital by tapping the alternative investment
market overseas and pay a higher capitalization rate for DLF's properties resulting in faster
growth in revenues and better margins too.
Thus DLF wanted to apply cost differentiation leadership strategy where through
economies of scale they reduce the cost and achieve differentiation in each of its strategic
business units.
KEY ELEMENTS OF ITS EXISTING BUSINESS STRATEGY
Brand reputation
 DLF has a 60-year history of service excellence. Since it was founded in 1946, it has been
responsible for the development of 21 urban colonies aggregating 5,816 acres, as well as an
entire integrated 3,000-acre township - DLF City.
DLF reputation for providing prompt payment to landowners upon the acquisition of its land,
developing and completing projects in a timely manner and conducting its business with
transparency has created a relationship of trust with its customers and suppliers. The company
retains internationally and nationally renowned architectural, construction and consulting firms
for all its projects.
Extensive land reserves are the most important resource for a real estate developer. As of
April 30, 2006, DLF land reserves under development aggregated 1,372 acres representing
approximately 102 million square feet of developed area or area available for development and it
has made partial payments to acquire a further 2,893 acres in various regions across India. It is
estimated that it will be able to develop over 118 million square feet of saleable or rentable area.
The Company benefits from economies of scale and is able to purchase large plots of
land from multiple sellers, thus enabling it to aggregate land at lower prices. The company has
the ability to anticipate market trends and, in some cases, to influence the direction of such
trends provides it with opportunities to acquire strategic locations of their choice.
DLF is one of the first developers to foresee the need for townships on the outskirts of
fast growing cities and is credited with the growth of Gurgaon. The company is one of the early
developers to focus on developing theme-based projects such as The Magnolias in DLF City.
The Company has an experienced, highly qualified and dedicated management team, most of
whom have over 20 years experience in their respective fields. DLF encourages responsibility,
autonomy and innovation among its employees with an attractive compensation package
Necia Builders and Developers Pvt Ltd, a subsidiary of DLF, has acquired a 19% stake in
Feedback Ventures at Rs72.5/ share. Feedback Ventures provides consulting, engineering,
project management and development services for infrastructure projects in India.
MoU with Nakheel:
DLF has signed an MoU with Nakheel LLC, a leading property developer in UAE, to develop
real estate projects in India through a 50:50 JV company. The initial two projects of the JV
company would be 20,000 acres SEZ each in NCR and South Maharashtra and/or Goa.
DLF has a hybrid business model, which is a blend of ‘sale and lease’. It is estimated DLF’s rental
income to increase from Rs6b in FY08 to Rs43b by FY12, comprising an asset base of 46m sq ft in
the commercial and retail verticals. The rental stream would enable the company a steady
income source and also provide monetization opportunities, leading to a long-term, self -
sustaining growth phase.
SHAREHOLDING PATTERN:
NO. OF % OF
SHARES TOTAL
PROMOTERS 1502823120 88.26%
INSTITUTIO 124231366 7.30%
N
GENERAL
PUBLIC 75657427 4.44%
GRAND 1702711913 100%
TOTAL
Analysis of the Indian economy with Respect to Real Estate Sector
According to the United Nations Population Fund (UNFPA),India is getting urbanised at a faster
rate than the rest of the world and by 2030 more than 40.7 per cent of the country’s population
would be living in urban areas. Presently, more than 28.7 per cent of India’s area is urban as
against the global average of 48.7 per cent. However, the growth rate of urban areas was 2.3 per
cent in 2005, as against the world average of 2 per cent. The urban population of India was
estimated to stand at 316 million in 2005 and is the second largest in the world after China. It is
estimated to reach 590 million by the year 2030 retaining its second position.
India’s cities have been the driving force in shaping India’s socio- economic profile. Urban areas
which constitute only 28.7 per cent of the population, have been a major contributor to
the GDP with a major share of industry and almost the entire services sector concentrated in the
urban agglomerations.
During the last sixty years, post independence the population of India has grown two and
a half times, whereas urban India has grown by nearly five times. According to Census of India
2001 estimates, 30 per cent of the total population of India would be living in urban areas by
2011. The number of cities with one million plus population is further expected to double from
35 in 2001 to 70 by 2025. India’s ‘Mega-Cities’ of Mumbai and Delhi would be the world’s 2nd
and 3rd largest cities by 2015.
With a rapid influx of migrants in these cities there is a corresponding increase in the demand for
space.
Rapid urbanisation is fostering real estate growth in India.
India has a much younger population compared to mostother economies. Currently the
population in the working age group (16-65 years) is about 700 million representing
about 64 per cent of the total population. India is expected to emerge as the highest contributor
to the global work force by 2010. Given that a majority of the population would still be young
the per capita income generation capability of India would continue to remain
robust. With the average age of home buyers declining fast the young working population would
further push demand for housing units higher.
First-time home buyer numbers have multiplied over the years and the median age of
home buyers has reduced from 38 years in the early 1990s to about 28 years today.
Increasing income levels:
The per capita disposable income has grown manifold in the past one decade. The current
annual per capita disposable income stands at around US$ 693 and is further expected to grow
by 8-13 per cent in the next five years.
Robust economic growth, particularly in the services sector has led to an increase in income
levels in the country. Several studies have indicated that salaries in India have been increasing by
an average of
10-15 per cent on a year on- year basis. This has increased the affordability of homes in spite of
higher property prices and has further created more discerning buyers
Affordability of housing:
As per estimates from the National Council of Applied Economic Research (NCAER) the
proportion of
HH in the top five income brackets (>US$ 11,651 per annum) has increased from 0.6 per cent in
1996 to 2.4 per cent in 2006 and is likely to increase further to 4.5 per cent by 2010. Also, the
number of HH in the top four income brackets (>US$ 23000 per annum) is expected to grow at a
CAGR of over
20 per cent till 2010. Thus, housing is expected to become increasingly affordable especially in
the mid-market and premium segments.
Retail Real Estate:
The Indian retail industry is witnessing a structural change with individual small format
stores making way for large format shopping malls and hyper-markets. On the policy front,
the partial relaxation in FDI regulation (51 per cent FDI in single brand retailing) has
provided a boost to the retail segment.
Presently the top seven cities of India account for a dominant share in mall space. The
total organised retail space absorbed for the year 2006-07 in the top seven cities was around
19 million sq. ft. The following chart depicts the absorption scenario of organised retail space
for the year 2006-07. National Capital Region (NCR), one of India’s most affluent urban
centres, dominates the absorption scenario followed by Mumbai and Kolkata. Bengaluru is
also emerging as a major retail hub owing to its cosmopolitan character