Why DLF Share Price is Falling

2022 was a roller coaster year for the Indian share markets. One day the indices were soaring high and the other day they were tumbling down the hills. Sensex and Nifty touched lifetime highs and also saw the worst fall since 2008.

Speaking of the volatility of 2022, apart from the indices there was one more sector that gave a volatile performance - real estate. During 2022, the real estate sector saw a lot of ups and downs and finally ended lower by 11%.

When we talk about the realty index it would be unfair to not talk about one of best real estate stocks in India - DLF.

During 2022, DLF share price moved in line with the index. The share price was down 5% in 2022. So the company had relatively outperformed the index in 2022.

However, in the last month DLF share price saw a steep fall of 11%. What changed for DLF? Why has the share price seen a sharp fall? Read on to find out.

Penalty imposed by Noida on DLF

On 23 December 2022, the New Okhla Industrial Development Authority (Noida) issued a notice to DLF, demanding the company to pay a sum of Rs 234.21 crore (about Rs 2.3 billion) as compensation to the previous owner of the land on which the Mall of India has been built.

The order comes in response to the order given by the supreme court on 5 December 2022. The apex judicial authority had directed the Noida Authority to ensure payment of compensation for the land to its previous owner Veeranna Reddy.

The land where the mall is built was acquired by the Noida, in 2005 from Reddy and was later auctioned to DLF.

A major part of the compensation to Reddy remains unpaid and the case reached the Supreme Court.

Owing to the news DLF's share price fell about 6% on 23 December. However, the share price fell based on an incomplete story.

The company received the notice on 29 December 2022 and issued a clarification on the penalty imposed. In its clarification, the company has defied the penalty imposed. It clarified that according to the order given by the supreme court of India, the acquisition of the land in question was made by NOIDA, which was purchased by respondent No. 7 (DLF) in the public auction. Therefore, the liability to pay the compensation would be of Noida.

The company is yet to finalise its legal course of action for the penalty imposed by Noida.

Apart from this DLF share price was also in trouble because of FII selling.

Continuous Selling by FIIs

Interest rates are rising in developed markets like the USA. This makes the emerging markets less attractive for FIIs because the risk-free rate of return reduces.

Hence FIIs sell their holdings in companies operating in emerging markets like India to return to the safety of dollars. The same has happened with DLF.

FIIs have been divesting their stake in DLF since March 2021. FII stake stood at 18.3% in the quarter ending December 2022 which was reduced to 17.39% in March 2021.

After that the FIIs have been gradually divesting stake from the company. The stake was reduced to 14.9% by the end of the September 2022 quarter.

To know more refer DLF's latest shareholding pattern.

Real estate sector also had to struggle with rising interest rates in 2022.

Rising interest rates

2022 was packed with challenges for many sectors. But the biggest challenge for the real estate sector was the rapidly rising interest rates.

An increase in home loan interest rates decreased the affordability of houses. According to experts a 1% increase in home loan interest rate reduces house purchase affordability by 7.4%. Hence it was expected that the DLF's sales would be impacted because of a rapid rise in interest rates.

The quarterly results of DLF show that the sales of the DLF saw a sharp decline. From the quarter that ended December 2021 to the quarter that ended September 2022, DLF's sales have decreased by 16%.

However, interestingly the profits of the company have not declined in the same way. In fact, the profits of the company are on a rise after December 2021. Along with interest rates the cost of the residential property also saw an increase and as a result, the company's profits increased.

Quarterly financial results of DLF

Particulars	Sep-21	Dec-21	Mar-22	Jun-22	Sep-22
Net sales (Rs in m)	14,809	15,497	15,473	14,416	13,023
Gross profit (Rs in m)	4,583	2,969	3,675	4,137	4,367
Profit after tax (Rs in m)	3,207	2,512	3,073	3,458	3,512
Gross profit margin (%)	30.9	19.2	23.8	28.7	33.5
Net profit margin (%)	15.3	12.3	14.4	17.9	20

Data Source: Ace Equity

Impact of Covid-19 breakout in China

China is the second-largest economy in the world. Hence, good or bad news in China will indirectly have an impact on all other countries around the globe.

In December 2022 internet was flooded with news scary outbreaks of Covid-19 cases in China. Infections are spreading like wildfire in China.

The Covid break-out in China may not have a direct impact on the Indian real estate sector. However, investors are wary because the breakout may spread out to other parts of the world including India. History is evidence of how Covid-19 spread from China and impacted the whole world.

During the pandemic period, the real estate sector was one of the worst-hit sectors. The pandemic resulted in a serious liquidity crunch for real estate developers. The credit shortage reduced residential sales.

However, a lockdown in India once again because of Covid-19 may be a distant possibility. Thus DLF's share price was struggling because of the headwinds it faced. However, with the changing economic scenario, it looks like the worst could be over for DLF.

How shares of DLF have performed

DLF's share price is down 11% in a month. On a year-on-year (YoY) basis, the shares are trading lower by 6%.

The company touched its 52-week high of Rs 429.8 on 18 January 2022 and its 52-week low of Rs 294.8 on 20 June 2022.

About DLF

Delhi Land & Finance (DLF) is a commercial real estate developer. It was founded by Chaudhary Raghvendra Singh in 1946 and it is based in New Delhi, India.

DLF developed residential colonies in Delhi such as Model Town, Rajouri Garden, Krishna Nagar, South Extension, Greater Kailash, Kailash Colony, and Hauz Khas. DLF builds residential, office, and retail properties.

For more details about the company, you can have a look at the DLF fact sheet and its quarterly results on our website.

Since you are interested in DLF you might also be interested in our editorial on top 4 real estate stocks to add your watchlist.

You can also compare DLF with its peers.

DLF vs Mahindra Lifespace

DLF vs Omaxe

DLF vs Ansal Properties

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...