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Wednesday, August 27, 2008

The DLF buyback

Scripscan:DLF Ltd
Traded in:Nse-bse
view:read on

Story:Dlf as we all are aware came out with its Ipo and then went on to hit a high of over 1200rs.The company priced its issue very aggresively and the high valuation was justified based on its huge land bank and not on its future earning, which is generally the case.The market too was having a gala time then and dlf issue only made things better.In january market condition deteriorated and DLF being no exception collapsed like anything to find support at sub 350 levels.Now its consolidating at around 450-530 zone.Recently the company announced a buyback to create "more value" for the shareholders.Interestingly the company is in an expansion mode and requires huge funds.So why spend money on buyback? Second,and more importantly, its cash inflows from operation are negative.It has, thus,to raise money from external sources to finance its operations.Now looking at the tight credit market conditions and liquidity, with interest rates moving northwards,is the buyback necessary? Is the buyback prudent and in the interest of the shareholders?DLF could land up in serious trouble if the market conditions continue to deteriorate going forward.Further the mute question:at what cost the buyback largesse?Ultimately it is the company that would end up financing the buyback and not the promoters.So folks I know majority of you people looked at the brighter side of the context but dont throw caution out of the window.Real estate sector itself has been the worst performer since january and chances are that it may get worse before getting better.Thus,apply maximium caution before plunging into the fraternity of value savvy long term investors.

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