DLF:

DLF Limited or DLF is originally called as the Delhi Land and Finance, is India's biggest real estate developer based in New Delhi, India. The DLF Group was founded by Raghuvendra Singh in 1946. DLF developed their first residential colony Shivaji Park in Delhi. Rajouri Garden, Krishna Nagar, South Extension, Greater Kailash, Kailash Colony and Hauz Khas are some of their constructions. In 1957, with the passage of Delhi Development Act, the local government assumed control of real estate development in Delhi and banned private real estate developers. As a result DLF began acquiring land at relatively low cost outside the area controlled by the Delhi Development Authority, in the district of Gurgaon, in the adjacent state of Haryana. In the mid-1970s, the company started developing DLF City project at Gurgaon. Its upcoming plans include hotels, infrastructure and special economic zonesrelated development projects. The company is currently headed by Indian billionaire Kushal Pal Singh. The company is having a gross operating profit of Rs. 5985.98 Crores in Mar 2010 & Profit after tax & monitory interestis Rs.4468.19 Crores. The recent developments include DLF builds residential, office and retail properties. As part of DLFs infrastructure development initiatives, DLF is developing two Automated Multi Level Car Parking facilities in New Delhi. These projects are being executed under Public-Private-Partnership with New Delhi Municipal Council (NDMC) on Design, Build, Operate and Transfer basis. Projects are located at the Sarojini Nagar Market (SNM) and Baba Kharag Singh Marg (BKS), Connaught Place, New Delhi. Automated parking system at the two locations would provide convenient parking in vertical structure. In current times, when land has become scarce in major cities, vertical structures for car parking provide the most apt solution.

Capital structure:
The term capital structure refers to the percentage of capital (money) at work in a business by type. Broadly speaking, there are two forms of capital: equity capital and debt capital. Each has its own benefits and drawbacks and a substantial part of wise corporate stewardship and management is attempting to find the perfect capital structure in terms of risk / reward payoff for shareholders. This is true for Fortune 500 companies and for small business owners trying to determine how much of their startup money should come from a bank loan without endangering the business. Capital structure of an organisation contains shareholders funds and loan funds which are generally referred as equity and debt respectively. Capital structure depends on the equities and debts of the organisation. They maintain a debt to equity ratio of 10.6%

Key factors in determining the debt-equity ratio:y Cost DLF has more number of equity share capital. Debt share capital requires lower rate of return compared to equity. However it is more riskier asset compared to equity share capital.DLF had issued 400 equity shares and has a Rs.40 crores of equity capital.this includes more tax rates and risk is less in this type of share capital.

Nature of asset DLF generally has more tangible assets and has a immediate resale value and hence debt finance is more. Since the company has more tangible assets they must maintain more debentures and less equity share capital. But DLF uses more equity and hence this will not be appropriate capital structure.

Business risk:Business risk of DLF is less. Profit before interest and tax = 5.85 Total asset=74 Business risk = 5.85/74 =0.07905 Hence business risk is low and hence financial risk is high for DLF ltd. Based on the demand variability, business risk differs. The demand has much variation because people buy shares based on the current market values of different firms and invest in the best companies.

The prices of the firms depend upon the size and workings. The company has high price variability and hence business risk is more.

Input prices of DLF builders vary more since the prices for raw materials used for buildings are increasing it has a high variability and haence business risk is more.

The assets of the project is more tangible but dilution of control is not important and the project has many valuable growth options DLF can have a capital structure of both debt and equity.

Financial instruments used:

A financial instrument is either cash; evidence of an ownership interest in an entity; or a contractual right to receive, or deliver, cash or another financial instrument. Cash instruments are financial instruments whose value is determined directly by markets. Financial instruments can be categorized into two types: y y Cash instruments Derivative instruments Cash instruments are financial instruments whose value is determined directly by markets. They can be divided into securities, which are readily transferable, and other cash instruments such as loans and deposits, where both borrower and lender have to agree on a transfer. Derivative instruments are financial instruments which derive their value from the value and characteristics of one or more underlying assets. They can be divided into exchange-traded derivatives and over-the-counter (OTC) derivatives.

DLF has used borrowings from corporate bodies, group and associated bodies, debentures and bonds and fresh capital to raise their funds. These were the financial instruments used by the DLF. The fresh capital was Rs.33.11 crore during march 2005. Borrowings were Rs.30.55 crore when the project was started in March 2005. It eventually increased to Rs.116.26 crore in march 2009. During march 2005 the firm was holding debentures and bonds of value Rs.22.62 crore. Rs. 30.55 crore was borrowed from corporate bodies, group/ associated bodies during march 2005. Borrowings from corporate bodies, group/ associated bodies during the year 2009 was -122. Hence the firm has raised the capital through bonds and debentures, fresh capital (new issue) and other equity premium. The total external sources for the DLF accounts to Rs.64.24 crore during 2005. The firm increased its external sources of fund to Rs.121.03 during the year 2009.

- fresh capital :

2005 33.11

2009 0

% decrease = {(33.11-0)*100}/ 33.11 = 100 % borrowings : 2005 30.55 2009 116.26

%increase = {(116.26-30.55)*100}/ 30.55 = 280% debentures and bonds : 2005 22.62 %decrease = {(0-22.62)*100} / 22.62 = -100% borrowings from corporate bodies : 2005 2009 30.55 % decrease = {(-122-30.55)*100}/-30.55 =499.345 -122 2009 0

Pros and Cons of public and private sources:

The DLF info city developers (Chandigarh) ltd, have obtained a secure loan of Rs. 238.26 crores by the year Mar 2009 & it consists of both short term & long term borrowings. The DLF has obtained secured term loan borrowing from the following banks 1) IL&FS Trust Company Limited 2) GE Capital Services India 3) Infrastructure Development Finance Company Limited 4) Axis Bank Limited - Trust Series 5) Axis Bank Limited - DAS Trust Series 6) Housing Development Finance Corporation Limited

Since the DLF has taken a term loan the current ratio which is about 3.077 by the end of March 2009. The current ratio has been increasing from 0.148 from March 2004. This shows their ability to pay the term loan. Mar 2004 0.148 Mar 2005 0.142 Mar 2006 0.085 Mar 2007 1.074 Mar 2008 2.303 Mar 2009 3.077

Year Current ratio

As they have term loans they will be having trouble during expansion or selling of assets. They should seek the concern of the term loaners. Even though they are supposed to maintain a minimum working capital they are having a negative working capital Mar 2004 -6 Mar 2005 -6 Mar 2006 -12 Mar 2007 -6 Mar 2008 -3 Mar 2009 -0.7

Year Working capital

This negative working capital shows that the project is facing serious financial trouble or the generate cash so quickly they actually have a negative working capital. This happens because customers pay upfront and so rapidly, the business has no problems raising cash. But in this case the project is in financial trouble. Internal accruals used: Nearly 40 crores is charged as depreciation from 2006- 2009. This is an internal source of fund for the organization. There was no depreciation charged in the year 2005. Break-up of the Depreciation charged Year 2006 2007 2008 2009 6 27 2

Amount in Crores 4

Retained Earnings: The company shows negative balance for years 2005 to 2008. It shows a positive balance for the year 2009. Year 2005 2006 2007 2008 2009 -29 -22 1

Amount in Crores -0.12 -24

Since, Internal Accruals = Depreciation + Retained Profit, we can add up both the items and arrive at the following result. Year 2005 2006 2007 2008 2009 -23 5 3

Internal Accruals -0.12 -20

The company made positive Internal Accruals only in 2008 and 2009. All the other years there were negative internal accruals. This shows that the company does not use internal accruals effectively to source its financing activities.

Firms dependence on domestic capital as against Internalization:

Some of the domestic capitals used by DLF are y y y Secured loans Unsecured loans Zero deferred credit

Of these, the unsecured loans are very less compared to the secured loans. Apart from the secured loans, they get the funds by issuing the equity shares of the firm. DLF doesnt depend on any international capital. A major benefit of the internationalization of capital markets is the diversification of risk. Individual investors, major corporations, and individual countries all usually try to diversify the risks of their financial portfolios. The reason is that people are generally riskaverse. They would rather get returns on investments that are in a relatively narrow band than investments that have wild fluctuations year-to-year. All portfolio investors look at the risk of their portfolios versus their returns. Higher risk investments generally have the potential to yield higher returns, but there is much more variability. Commercial banks powered their way to a place of considerable influence in international markets during the late 1990s. The primary reason for this was that they often pursued international activities that they would not have been able to undertake in their home countries. The lack of international regulation fueled bank growth over the decades leading up to the 1990s. Corporations often use foreign funds to finance investments. Corporations may sell stock, issue bonds, or obtain loans from commercial banks. The trend in the late 1990s was for corporations to issue securities that attracted investors from all over the world. The Eurobond, which we described above, was an example of this. A Eurobond is a corporate bond not denominated in a single currency, but gives the lender the right to demand repayment from a preset spectrum of currencies. For example, a bond may allow its holder

the right to be repaid in yen, euros or pounds. When the holding period is over, the holder chooses the most preferable currency at that time. This partially protects buyers from exchange rate fluctuations. Though they has several advantages as mentioned above, International capital markets are not focused by DLF. That may be because of the differences in procedures across the countries. When it comes to international, one factor that is to be considered primarily is the forex rates or the foreign exchange rates. The rates keep on fluctuating from one day to another. For instance consider that 1 USD is equal to Rs 45 today and the same 1 USD is equal to Rs 46 the next day. So in this case, if the firm buys the loan from an international capital market, there may be an uncertainty in the value to be repaid.