Company Bio: Dlf Ltd

DLF LIMITED

Company Bio

Delhi Land and Finance Limited, better known as DLF Limited, is India's largest real estate company in terms of revenues, earnings, market capitalisation and developable area. It has a 64-year track record of sustained growth, customer satisfaction, and innovation. The company has approximately 238 msf of completed development and 423 msf of planned projects, and has pan India presence across 30 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.

The development business of DLF includes Homes and Commercial Complexes. The Homes business 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 216 msf of developed area under homes and residential plots. The development business at present has 391 msf of development potential with 25 msf of projects under construction.

The annuity business consists of the rental businesses of offices and retail. DLF has become a preferred name with many IT & ITES majors and leading Indian and International corporate giants, including GE, IBM, Microsoft, Canon, Citibank, Vertex, Hewitt, Fidelity Investments, WNS, Bank of America, Cognizant, Infosys, CSC, Symantec and Sapient, among others. DLF pioneered the retail revolution in the country and brought about a paradigm shift in the industry by redefining shopping, recreation and leisure experiences with the launch of City Centre in Gurgaon in 2000. The Retail Malls business is a major thrust area for DLF. The company has land resource of 92 msf for office and retail development, with 17 msf of projects under construction.

Project Scope

In the present study, we set out to examine DLF from the point of view of its various stakeholders- Business, Government and Society. For each of these entities, we shall analyse and assess with the help of examples whether DLF has performed as a Responsible Corporate Citizen or not. We shall finally summarize our findings stating recommendations for improvement, if any. We shall examine the organisation's interaction with these three major entities as shown in figure 1 below:

DLF and Business

DLF has a diverse asset portfolio across real estate segments and is expanding its presence across the country. For 2008-09, the company reported a net profit of Rs.45.01 billion on net sales of Rs.100.70 billion, against a net profit of Rs.77.35 billion on net sales of Rs.140.43 billion in the previous year. DLF's revenues have grown at a healthy CAGR of 76% over FY 06-09 on the back of increased real estate activities.

Despite showing a healthy growth pattern over the last decade, some of the business activities of DLF have put it on wrong side of the fence and have cast a shadow on its corporate governance. Some of these dubious actions are as follows:

Violation of SEBI Takeover Code

DLF was a listed company until 2002-03, and the market value of each paid up share of Rs 10/- was Rs 88 /- as on 30-SEP-2002. In 2003, its promoters increased their holding beyond 90%, in violation of SEBI's takeover code. DLF admitted to the lapse, and paid a paltry fine of Rs 5 lakhs. DLF knew that the penalties in the Indian capital markets are much lower than the extent of scam the promoters and brokers conduct and hence went ahead with the plan without any hesitation.

Inconsistencies in Dealings with Minority Shareholders

In the same year, DLF made an open offer to the public at Rs 320 per share to buy out minority shareholders and went private. The promoters of DLF owned 99.5% of its equity. Residual shareholders complain that the company made a rights issue of partially convertible debentures in a 1:1 ratio the previous year, but omitted to post the offer letter to 90% of the minority investors. The lucky 10% who got the letters and would possibly have profited enormously were all closely connected with the company. These debentures have since been converted into 10 equity shares each. Further, the company made a bonus issue in the ratio of 7:1 and then split the face value of shares to Rs 2 each. Those who did not get the rights offer were thus deprived of 400 shares each against each share held on the record date. Since the promoter holding is 99.5%, it is clear they did not want to share the bonanza emanating from their massive capital restructuring exercise with the 1,100 investors who clung on to their share holding.

Corrupt Practices

In order to aggressively push the DLF IPO to retail investors, brokerages and agents have been alleged of using illegal methods like providing cash incentives to brokerage firms. A leading Indian daily reported that Kotak securities had offered very high commissions to brokerages on a per application basis. This money was not paid by DLF. Instead, this extra burden was passed on to prospective applicants as issue expenses.

DLF and Government

For any organization to be a responsible citizen it has to abide by rules and regulations laid down by the government. The government includes City, State, Central Laws, Regulations, Taxes, Services, Court System, and Political Processes. By no exception DLF has to obey the law of land. But there have been many instances where DLF has been caught on the wrong foot.

DLF and Income Tax Authorities

The tax demand, which will be appealed against by the company, arose out of a special audit of DLF's accounts for 2005-06. A special auditor, appointed by the income-tax department for the purpose, came to the conclusion that the company had earned about Rs 1,200 crore over and above what it had declared in its returns.

In its statement to BSE, DLF said that the root of the extra tax demand lay in the change in accounting methods that the company made in 2005-06. The new method, prescribed by the Institute of Chartered Accountants of India, requires real estate developers and construction companies to switch over from the "conveyancing method" to the "percentage of completion method" (PoCM) for computing revenues and profits. DLF said that the company had used the PoCM method in the following years too. But then question is, hadn't DLF anticipated that change in accounting