FA Group Assignment

Project Title – Company Analysis

Bhavya Sahni E010

Parth Singh E020
Sujay Singh E030
Pratik Patni E040
Mehak Mehta E060
Muskan Kamboj E070
Industry Analysis: Real Estate Sector in India

The real estate sector is one of the most globally recognized sectors. It comprises four sub-
sectors - housing, retail, hospitality, and commercial. The growth of this sector is well
complemented by the growth in the corporate environment and the demand for office space as
well as urban and semi-urban accommodation.

The real estate sector is expected to expand to US$ 5.8 trillion by 2047, contributing 15.5% to
the GDP from an existing share of 7.3%.

Key Trends and Developments-

1. Changing Customer Profile - The preference of consumers and their profile is evolving
which is shaping new trends in the Real Estate sector. Increasing per capita income,
stable interest rates, favorable economic conditions are driving customers particularly
millennials.
2. Impact of COVID-19 - The pandemic initially led to a downturn in real estate activity,
with reduced demand.
Financial Analysis using Ratios -

DLF 2018 2019 2020 2021 2022 2023

Quick Ratio 0.41 0.34 0.16 0.02 0.07 0.13

Current 2.848 1.636 1.783 0.024 1.771 2.015

Ratio
 DLF's current ratio has been constantly increasing at 2.015 in the F.Y. 2022-23, while the quick
ratio has mostly remained stagnant. This has been possible because of the increase in other
current assets as evidenced in the balance sheet.

SOBHA 2018 2019 2020 2021 2022 2023

QUICK RATIO 0.07 0.06 0.05 0.05 0.06 0.07

CURRENT 1.330 1.068 1.136 1.107 1.144 1.112

RATIO

For Sobha, the proportion of change of both the liquidity ratio has been constant throughout. The
ratios are not that near ideal. The current ratio stands at 1.112 & ideal being 2, and the quick ratio
stands at 0.07, while the standard one being at 1.

LEVERAGES

DLF 2018 2019 2020 2021 2022 2023

Equity 0.711 0.659 0.511 0.691 0.971 0.772
Ratio

Debt to 0.29 0.40 0.29 12.94 0.27 0.23

Assets
Ratio

Debt to 0.406 0.610 0.573 18.734 0.277 0.294

equity
ratio
Interest -0.65 1.03 3.86 2.48 4.39 8.54
Coverage
Ratio

As seen earlier, the company’s increased focus on reduction in the debt levels is being seen in the
leverage ratios.
 SOBHA 2018 2019 2020 2021 2022 2023

Equity Ratio 0.297 0.197 0.221 0.208 0.220 0.198

= Total Equity
/ Total Assets

Debt To 0.70 0.80 0.78 0.84 0.83 0.80

Assets Ratio =
Total Debt /
Total Assets

Debt to equity 2.371 4.077 3.530 4.042 3.764 4.046

ratio = Total
Liabilities /
Total
Shareholders
equity

Interest 1.42 1.88 0.64 0.13 0.32 0.54

Coverage
Ratio = EBIT
/ Interest Due

Sobha on the other hand is on a different path. This has in turn put some pressure on the net
profit of the company. The ideal ratio of interest coverage being 1.5, the company falls
significantly short at 0.54.

PROFITABILITY

DLF 2018 2019 2020 2021 2022 2023

Net income 12.3 20.85 95.40 26.84 20.82% 58.29%

to sales

Return on 1.14 1.96% 4.31 2.63 2.26% 6.21%

assets

Return on 1.6% 2.98% 8.43% 3.81% 2.32% 8.05%

equity
 Total assets 9.28% 9.42% 4.52% 9.80% 10.84% 10.66%
turnover

Operating 53.37% 54.42% 60.09% 48.1% 45.70% 40.15%

Ratio

Return on 14.73% 21.42% 43.40% -0.39% 38.47% 46.94%

capital
employed

Return on 1.56% 2.98% 8.45% 3.81% 2.32% 8.02%

shareholder
’s funds

The profitability ratios of the company have seen a healthy increase. With ROE rising from
1.56% to 8.02% and ROCE actually going negative, from 14.73% to 46.94%.

Profitability- 2018 2019 2020 2021 2022 2023

SOBHA

NET income to 7.46% 8.53% 7.50% 3.12% 4.16% 2.86%

sales

Return on assets 2.20% 2.72% 2.56% 0.60% 1.03% 0.76%

Return on equity 0.40% 0.61% 0.86% 1.77% 1.62% 6.74%

Total assets 29.49% 31.84% 34.09% 19.14% 24.65% 26.44%

turnover

Operating Ratio = 42.30% 47.37% 45.38% 55.39% 53.22% 46.80%

(Cost of Revenue
from Operations +
Operating
Expenses)/net
revenue from
operations
 Operating Profit 57.70% 52.63% 54.62% 44.61% 46.78% 53.20%
Ratio = 100 –
Operating ratio

ROCE = EBIT ÷ 8.93% 20.62% 15.92% 3.49% 10.27% 4.16%

Capital Employed ×
100

The profitability ratios of Sobha have mixed signals. While there are positives in the form of
increasing ROE and a significant improvement in the Operating margin over the years. However,
the Asset turnover ratio is on a decline showcasing poor utilization of assets. The net profit ratio
is also on a fall over the years, showing the costs of the company have increased more in
proportion to the revenue figures.

4. VALUATION

DLF 2018 2019 2020 2021 2022 2023

EV/EBIDTA 16.19 14.75 8.28 14.46 17.48 9.86

However, with the company’s fiscal prudence efforts, it has fallen to an all time low in F.Y.
2022-23 thereby providing a lucrative investment opportunity.

SOBHA 2018 2019 2020 2021 2022 2023

EV/EBIDTA 16.90 9.94 12.61 69.00 20.23 32.08

The EV/EBITDA ratio of Sobha before the covid ,It was at a phenomenally high level at 69 in
F.Y. 2022-23, which fell to 20.23 in the year after but then again increased to 32.08 in the year
that followed after that.

COMMON SIZE ANALYSIS

1. NET PROFIT
 DLF 2018 2019 2020 2021 2022 2023

Net Profit 36520.37 68758.21 226432.16 105345.65 84362.12 2,31082.16

CHANGE - -88.27% -229.32% -53.48% -19.92% 173.92%

in Net
Profit

CAGR 44.63%

DLF shows significant growth in net profit from 2018 to 2023, with a remarkable compound
annual growth rate (CAGR) of 44.63

SOBHA 2018 2019 2020 2021 2022 2023

Net Profit 1,939.41 2,865.25 2,816.69 655.39 1,128.52 952.89

Change in net 47.74% -1.69% -76.73% 72.19% -15.56%

profit

CAGR -13.25%

SOBHA's net profit shows significant volatility over the 2018-2023 period, with a sharp decline
in 2021 likely due to external factors.

2. TOTAL LIABILITIES

DLF 2018 2019 2020 2021 2022 2023

Total 951267.9 1407545.2 1535873.1 1239001.8 1008602.8 847800.7

Liabilities 7 6 0 4 1 8

Change in - 48% 9% -19% -19% -16%

total
liabilities
 CAGR -2%

DLF's total liabilities show a decreasing trend with a negative CAGR of -2%, suggesting
improved debt management or asset reduction over the period.

SOBHA 2018 2019 2020 2021 2022 2023

Total 62051.98 84697.82 85810.25 92311.55 91190.11 100935.7

Liabilities 2

CHANGE IN 36.49% 1.31% 7.58% -1.21% 10.69%

TOTAL
LIABILITIES

CAGR 10.22%

Sobha: Sobha's total liabilities demonstrate an upward trend with a 10.22% CAGR, indicating
increased leverage or expansion activities, which may require careful monitoring of debt levels.

Comparison of environmental, social, and governance (ESG) performance

1. Environmental impact

DLF Ltd.
● Renewable Energy: 20% of DLF’s energy consumption comes from renewable sources,
primarily solar.
● Carbon Emissions: Carbon emissions were reduced by 10% due to enhanced operational
efficiency and greener manufacturing processes.

Sobha Ltd.

● Energy Efficiency: Sobha has reduced energy consumption by 12% through the adoption
of energy-efficient technologies.
● Water Consumption: 70% of Sobha’s projects use rainwater harvesting and water
recycling systems, saving about 450,000 cubic meters of water per year.

2. Social Responsibility

DLF Ltd.
 ● Employment: Directly employs 4,000 people and indirectly supports over 15,000
businesses.
● Diversity: Women represent 22% of the workforce, with a goal to increase this to 30% by
2025.

Sobha Ltd.
● Community Engagement: Committed ₹250 million to social projects, including
education, health, and vocational training.
● Health and Safety: Improved safety standards with an 18% reduction in workplace
incidents due to enhanced safety measures and training.

3. Government Actions

DLF Ltd.

● Board Composition: The Board consists of 10 members, with 30% being independent
directors to ensure impartial decision-making.
● Corporate Governance: Strong adherence to corporate governance practices with a focus
on transparency and accountability.
● Ethical Standards: Implemented an enhanced anti-corruption program and ethics
guidelines, resulting in a 25% increase in compliance training.

Sobha Ltd.

● Board Composition: The Board has 8 members, with 25% being independent directors.
● Corporate Governance: Maintains high corporate governance standards with a focus on
fairness and transparency.
● Ethical Standards: Enforces strict codes of conduct and anti-corruption measures, with a
20% increase in compliance training.

MDA Analysis: Financial Performance, Strategic Initiatives, and Unique Attributes

1. DLF Limited

The key strengths include:

● Strong financial performance: DLF reported net income of ₹34,024 crore for FY 2022-
23, with a cash flow from operations of ₹10,559 crore. The 39% growth in facilities
showcases strong expansion at the business level. Strong systems in place: There is a
comprehensive internal structure with an ERP system that helps in bringing efficiency
into operations.
 ● Awards and Sustainability: Featured on the Dow Jones Sustainability Index Emerging
Markets Index for three consecutive years, DLF has also installed the EV charging points
in its projects.

2. Sobha Limited

Key Strengths:

● Strong Financial Performance: Consolidated revenue for FY 2022-23 was ₹36.88 billion
for Sobha, while the net profit stood at ₹2.85 billion. The firm has good operating
margins and cash flows.
● Implementation of Strong Systems: Sobha uses advanced ERP systems and has robust
internal controls to protect assets and ensure compliance.
● Focus on Quality and Innovation: Sobha focuses on high standards and cost efficiency by
adopting new construction technologies and sustainable practices.

Comparison

DLF and Sobha have different areas of strengths:

● Financial Performance: While Sobha is a more profitable company, DLF has huge
growth in certain areas.
● Internal Systems: Both are using an ERP system. However, the enunciation of DLF was
based on values. On the other hand, Sobha puts more emphasis on financial integrity.
● Risk Management: The strategic efficiencies are the focus of DLF, and for Sobha,
enhancing the financial system and risk management strategies remain in focus.

Board of Directors (BOD) Analysis

1. DLF Limited

● Structure and Composition: The BOD at DLF consists of executive, non-executive, and
independent directors to ensure diversified perception and understanding.
● Current Affairs: The board looks towards the areas of transparency and adapting to the
changes in laws and market conditions.

2. Sobha Ltd.
● Government Acts: Accountability, transparency, and ethical behavior are kept under
check through multiple committees.
● Recent Developments: The BOD is committed to continuous improvement in governance
practices and keeping up with changing industry scenarios.

Summary:
On this front, both DLF and Sobha showcase strengths in their governance structure. The former
has diverse expertise in the BOD, with a special focus on transparency. For the latter, the BOD
lays much emphasis on upholding high standards and adaptability.

Actionable:
1. Recommend which company is best from the management viewpoint.

DLF is definitely the better one here. With its sound fiscal measures, the debt levels have been
brought down drastically, thus giving more leeway to the managers to expand the company,
without putting too much pressure on the financial resources of the company. The operating
margin of DLF also ranks far better at 30% as compared to Sobha’s 10%. This is a direct
representation of the management’s ability to conduct the core affairs of the company more in a
more efficient manner. Thus, DLF seems like the way to go according to the management’s point
of view.

2. Recommend which company is the best from lenders’ both short- and long-term
perspectives.

Looking at the figures from a lender’s point of view, DLF comes out on top, whether looking at a
short-term perspective or a long-term perspective. This is because the company has such strong
financials. The interest coverage ratio of DLF is 8.53 as compared to Sobha’s 0.53, making it 8
times better and able to pay back its financing cost. The Debt to assets ratio of DLF is also 0.23
as compared to Sobha’s 0.8 showcasing more assets are available per unit of debt thereby
making it a more secure company for long term financing. On the other hand, the current ratio of
DLF is closer to 2, as compared to Sobha’s 1 making it a clear winner for short term financing.

3. Recommend which company is the best from the investor’s viewpoint - both for short
term and long-term investment horizon.

For a short-term investment point of view, DLF should be preferred as it ranks far better in terms
of liquidity ratios. Quick ratio being 0.13 as compared to 0.08 and current ratio being closer to 2
as compared to closer to 1, thus it is safe from facing any liquidity crises which makes it secure
in the short term. For the long term, DLF still holds the crown, having shown an increase in the
net profit CAGR of 44% as compared to Sobha’s -13%. The long-term profitability difference is
stark. Also, the volatility in the sales growth of DLF is much lesser compared to Sobha’s. This
helps the company give some predictive returns, and protects in some worst economic phases
thus making it a better choice for long term investment.
 Similarity Report

PAPER NAME AUTHOR

FA Group Project_FInal.pdf Group 10

WORD COUNT CHARACTER COUNT

2302 Words 10962 Characters

PAGE COUNT FILE SIZE

11 Pages 341.1KB

SUBMISSION DATE REPORT DATE

Aug 5, 2024 9:45 AM GMT+5:30 Aug 5, 2024 9:46 AM GMT+5:30

9% Overall Similarity
The combined total of all matches, including overlapping sources, for each database.
8% Internet database 0% Publications database
Crossref database Crossref Posted Content database
6% Submitted Works database

Summary