DLF Limited

Lot of stuff has been said about DLF in the last week. Veritas, in its research report casted strong doubts over DLF’s accounting practices and its dealings with DAL (DLF Assets Limited). Year after year, DLF showed a large chunk of its sales to DAL without getting paid for it. So in effect, DLF on its books showed property sales to DAL on one side and showed receivables of almost full amount from DAL on the other side for balancing. From FY07 to FY11, through this accounting practice DLF inflated its Sales by Rs 11236 Crores and Profits by Rs 7233 Crores. After doing so for many years without any payment from DAL, it merged DAL with itself in 2011.

DAL is a DLF Promoters company and its merger with DLF was done at ridiculous valuations. This is cheating in most open terms but allowed very well by Indian laws. This is why I do not like fundamentals as all these years DLF books showed good topline and bottomline growth. Balance Sheets and P&L Accounts hide much more that they reveal and only after careful scrutiny you can find loop holes which have been exploited by these companies. Many a times, even trained persons fail to spot these irregularities (remember Satyam) then what are the odds for lesser mortals like you and me here.

Well, Price and Volume data does not lie (in most non-penny stock cases) and fortunately for us it is not in the hands of these companies to publish it. So let’s look at the chart now…

Chart is no good and does not help much. All moving averages are beyond reach of the price as of now and they are drooping too. MACD or RSI are not inspiring any confidence at the moment either.

First level which can be called as some support is around 171-175 for DLF. It is created by the lower trendline as well as it is the same level from where stock has rebounded twice/ thrice in last six months. Rs 100 valuation as created by Veritas will also acts as mind magnet for various players. Veritas has couple of success stories backing them up (Kingfisher, Reliance Communication, etc) where they identified the cancer in early stage and that will play at the back of mind of any person dealing with DLF. The inquiry initiated against DLF by Ministry of Corporate Affairs (MCA) if done correctly, will very well decide what lies ahead for this Script (Life Milegi ya Tawe pe fry hoga).

Fundamentally I have some unidentified allergy with real estate sector and I believe that ethical behaviour and real estate sector do not (or cannot) go hand in hand. This applies to ‘one of project builder’ to ‘big blue chip NIFTY component companies’ alike. Now this kind of business practices can get you to top very fast but cannot sustain you there for long. Real Estate sector in India is not plagued by rising input (Cement, Steel) costs or by non-availability of labour. What stops it by realising its true potential is widespread malpractices across the breadth and width of entire sector. Too much political interference, bad brokers, crooked builders, one sided agreements, non-fathomable (to layman) beaurocracy and greedy investors are some of the factors which keeps the general public away from real estate. The scene is so bad that the real pain for a person starts after he books a flat which actually should be a point where he should starts to relax.

Bad and heart breaking stories are too many to ignore in this space and I personally do not like them. Hence I do not get in to real estate stocks for these (foolish as they may sound) reasons.

Technically too, there is nothing positive in the charts so as of now it is ‘stay away’ in my deeds as well as advice too.

Happy Trading.

Disclosure: No Positions at all.