What now for DLF

DLF seems to be having an awfully bad time. First came the CCI order which for now has been upheld by all the courts where it approached for its squashing. Next came the decision of HSIIDC to cancel 350 acres allotted to it. As in case of the earlier order, its at its last appeal process at SC. And now comes the SEBI order banning the company and its promoters from accessing the market for 3 years for what is quite clearly a fraud. That it took SEBI 7 years to come up with this says a lot about the slow cycle of justice in India.

I have never been a fan of Real Estate companies and the way the Realty Index has acted in these many years just confirms as to how ridiculous a investment it could have turned out to be.

With the stock crashing 28.6% yesterday, the question on top of the mind is whether there is value in bottom fishing. After all, bottom fishers in Wockhard, Satyam have been amply rewarded for the risk taken. I defer though in case of DLF (though for now, I have turned out to be wrong in case of Wockhardt).

DLF is what could be called “Politically linked company” and I am sure owes a large part of its growth to that link which helps in various ways. Unfortunately, this political mileage can cut both ways and for now, DLF seems to be on pretty sticky ground.

The fundamentals of the company is pretty bad. 5 Year compounded sales growth is -5.75%, 5 Year compounded profit growth is -26.78% and 5 Year compounded ROE is at 4.73% (All data from www.Screener.in). With yesterday’s fall, market capitalization of the company is at sniffing distance of its Debt, something that tells its own story.

FII’s own a large part of the free sharholding in the company. I assume that this is due to DLF being a proxy to exposure to Indian Real Estate as well as compulsion due to DLF being part of Nifty. But if rumors circulating about the stock being excluded are anything to go by, one may see further pressure on the stock as Institutions start to exit enmasse.

On the other hand, DLF is no small company to go down without a fight and I wonder as to at what price, market shall realize that its something that is worth risking. Unlike many Infra companies where debts exceed the assets owned the company, DLF indeed has assets which should be more valuable than the total debt it has.

The book value of the company is 154 and I wonder if at a price of around 75, the stock makes for some high risk buying. After all, its when blood is on the street that valuable assets are available for a price that is lower than what it ordinarily would have sold. On the other hand, with quality companies available (sector being the same), there is also this line of thought that there is no point in trying to catch the proverbial falling knife when the same risk could be taken with a good share and one where the probability of success is much higher.

Since the stock is hitting all time lows, there is no point in looking at the stock technically until it starts trend reversal happens. All in all, I think at the current juncture, buyers of this stock would be literally buying a lottery ticket though the jackpot at best maybe 2x the investment and even that could take years to come.