MANAGEMENT DISCUSSION & ANALYSIS REPORT

ECONOMIC OVERVIEW

Indian economy showed early signs of growth post various initiatives and reform measures undertaken by the Central Government. Post the revision in the base year for calculation of GDP to FY'12 from FY'05 earlier, FY'14 GDP at factor cost stood at 6.6%. Advances estimates from the Central Statistics Offi ce pegs the FY'15 growth estimates to 7.4% (YoY) The Company believes that public and private investment spending to drive the capex growth will be critical to India's growth outlook. The Government has taken measures to boost spending by increasing the capex allocation towards infrastructure projects by reforms in the budget. The Government is also taking various initiatives to unlock stuck investments in the core and infrastructure projects, revive investments from the private sector by reforming policy environment, improving the ease of doing business and accelerating the project related approvals.

Reserve Bank of India's policy seems to be heading towards creation of a stable, low inflation regime. The Reserve Bank of India (RBI) has started to lower the interest rates as well as increase the liquidity in the economy by taking various initiatives. The RBI has indicated that further monetary actions will be conditioned by incoming data especially on the easing of supply constraints, pass through of rate cuts into lending rates and improved availability of key inputs such as power, land, mineral and infrastructure. Additionally, impact of US interest rates on global capital flows will determine the pace of interest rate cuts.

Post the regime change in India's federal Government, there have been fi rm signals of development agenda and pushing of reforms required to revitalize the economy. The Government has taken measures to revive the economy by modifying FDI policies for various industries, pushing hard for infrastructure spending and towards creating smart cities. Reforms to create flexibility in labour markets, safety net for the unorganized sector and passing of GST to create a common market will go a long way to take the growth momentum to a different level.

THE INDIAN REAL ESTATE SECTOR

The real estate sector continued to face a challenging environment due to lacklustre demand scenario,  various policy hurdles, delay in approval cycle, continued high borrowing costs both for industry and the consumer.

The RBI has started to soften the interest rates but the impact at ground level is still awaited. Further downtrend in the interest rate cycle remains crucial for revival of the sector.

Various reforms announced by the Government such as 'Housing for all by 2022', development of 'Smart Cities' and the proposed real estate regulatory bill are expected to benefi t the sector over the medium and long-term. The approval to Real Estate Investment Trust (REITs) was also an extremely welcome step which should help revitalising the office & retail business.

Residential Segment

The residential segment continues to witness a challenging environment amidst policy uncertainties, delay in project approval cycle and tepid demand scenario. However, select micro-markets primarily catering to the luxury/brmium segment witnessed reasonable interest.

The Government, however, has pushed big ticket reforms to provide housing for the masses with the introduction of their policy viz. 'Housing for All by 2022'. In India, the pace of urbanization has not been able to match its peers globally. Approximately 30% of India's population lives in cities as compared to an average 50% globally and 70% in developing nations and substantial portions of this population lives in illegal, shanty towns.

The Government expects that half of the population would be shifting to urban cities by 2050. The Government has estimated a shortfall of around 30 million housing units by 2022 in meeting urban demand. The cumulative demand for urban housing is estimated at around 100 million units in this period. The year closed on a cautiously optimistic note attributable to partial monetary easing and positive indications from the RBI, green shoots of recovery in the business environment and positive sentiments in select micro-markets.

A recent paper released by the Reserve Bank of India indicates that there is no bubble in property prices and inflation adjusted prices have come down slightly reported at 4%.

Residential segment is expected to improve owing to the above mentioned factors in the medium-term as consumers gain confidence in certainty in their income level.

Office & IT SEZ Segment

2014 witnessed a return in growing demand for Office & IT space resulting in improved absorption and low vacancy. Vacancy rates at the end of Q4 FY'15 were estimated at around 17% for Pan India, whereas for CBDs it was estimated to be around 11%.

The recovery in the Offi ce demand can be primarily attributed to the IT & ITES sector, though telecom, health-care and BFSI services have shown improvement in terms of leasing activity. The share of the IT & ITES sector in total absorption of office space in India is estimated at approximately 36% for this year and around 30% can be attributed to Telecom, BFSI & Consultancy business etc. (Source: Real Estate Intelligence Services - JLL, Q4). The increasing demand from sectors other than IT & ITES can be viewed as positive signal to achieve stability in the office spaces.

During the fiscal year 2015, the Securities and Exchange Board of India (SEBI) has notified Regulations for introduction of Real Estate Investment Trusts (REITs). Ministry of Finance, Government of India has also introduced various incentives such as exemption of capital gains, pass through status for rental income on assets directly owned by the trust and relief on issues of applicability of MAT. The introduction of REITs can completely transform the office landscape by providing an avenue for the developers to monetise their assets and generate cash for future growth. REITs will also help in bringing transparency in transactions and long-term capital to the industry as well as institutionalising the sector.

Retail Segment

The year end stock across the seven metro cities in India was estimated at approximately 71.6 msf, with vacancy levels of approximately 17% across the sector. (Source: Real Estate Intelligence Services -  JLL, Q4 14).

The current year witnessed historical low levels of supply and demand primarily due to the boom in the e-commerce market in India and partially due to FDI policy uncertainties. However, with the recent growth indicators in the economy growth and revival of positive consumer sentiments, the retail segment is expected to witness an up-cycle in the near future.

The retail growth can largely be attributed to change in the retail landscape and attitude of various developers to brsent a unique experience to the consumers. The developers are now focussed on creating flexible design and layout of retail spaces to provide a more vibrant and satisfying environment. On the other side, retailers need to focus on optimising the customer engagement by upgrading their systems landscape, operational approach and performance metrics. REITs in the retail sector will play an important role as developers need not sell retail spaces on a strata basis which usually lead to sub-optimal tenancy planning.

Key Developments in the Indian Real Estate Regulatory Framework

Real Estate (Regulation and Development) Bill, 2013

The amendments to the draft Real Estate Bill seek to regulate the real estate sector by establishing a real estate regulatory authority ("RERA") and an appellate tribunal. The bill aims at protection of the consumer interests and increase transparency in the way the industry operates. The Real Estate Regulatory Bill currently awaits approval of the Parliament.

The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement  Act, 2013

The Land Acquisition Act came into force from January, 2014. The Act seeks to govern processes in relation to land acquisition in India and contains provisions relating to the compensation, rehabilitation and resettlement of persons affected by such acquisitions. The Act has witnessed stiff opposition from wide spectrum of industry as the cost of development will escalate as companies would also need to budget for additional cost and delays in project execution. The NDA government has sought to amend the Act through an ordinance to make land acquisitions for development oriented projects and public projects less cumbersome, though it continues to remain a high cost proposition for the industry. The amended Act is yet to be passed by the Parliament.

Real Estate Investment Trusts (REITs) Code

The SEBI has notified regulations for introduction of Real Estate Investment Trust. This has laid the foundation for introduction of these instruments in the country, which shall help real estate developers and large real estate owners raise long-term capital from investors both in India and abroad. Ministry of Finance, Government of India has introduced various incentives such as exemption of capital gains, pass through status for rental income on assets directly owned by the trust and amendment to FEMA to allow FII's to invest into REITs

It is expected that current fi nancial year would see an offering on REITs platform in the current financial year from a couple of property owners and developers, including that from DLF.

Foreign Direct Investment

The Government of India has revised the Foreign Direct Investment (FDI) policy through Press Note 10. Noteworthy revisions are the reduction in minimum area requirements to 20,000 square metres and reduction in minimum capitalisation to US$ 5 million. Additionally, it has allowed FDI to come into 'brown field' projects and exit projects with trunk infrastructure, subject to FIPB.

BUSINESS AND FINANCIAL PERFORMANCE & OUTLOOK

Strategy

Your Company continues to implement its strategy to concentrate on its core business & geographies  and to develop a right product-mix well suited for its markets. Your Company remains committed to invest in the development of supporting infrastructure in its core markets to match the global standards thereby providing a healthy and safe lifestyle. The SEBI has notified the REITs regulations and the Finance Ministry has rationalised the tax structure for these instruments to a great extent. Your Company has over the last decade created a huge platform of annuity assets, which continues to grow as Office, IT SEZ and retail segment fi nds traction as the GDP grows. The REIT platform therefore provides an excellent avenue for monetizing these assets thereby re-cycling capital for fuelling future growth without losing control of these long-term assets.

With the introduction of REITs and the demand for residential products showing early signs of improvement, your Company remains committed to achieve a robust, conservative capital structure by matching long-term capital with long-term assets, reducing debt on the books, thereby improving both the quality and pricing of its debt.

The key elements of its business strategy are as follows:

(a) Focus on its core markets

The Development Business is focused primarily on the development of brmium and luxury residential projects and plotted 'gated' colonies and certain strategically located office projects. Your Company now has implemented a strategy of outsourcing the construction, project management of its projects, to allow the Company to overlook these developments with increased focus and achieve timely execution of the projects while adhering to the highest standards of safety and compliance.

(b) Continue to focus on the growth of lease business

Your Company has over the last decade created a huge platform of annuity assets and continues to grow its annuity income. Post the introduction of the REITs regulations and necessary tax reforms, your Company is evaluating various alternatives and undergoing a strategic review of its annuity business for finding out the best possible path going forward to create sustainable, long-term value for its shareholders.

(c) Reduce debt and improve the quality of debt Your Company's aggregate Net Debt amounted to Rs. 20,965 crore as of 31st March, 2015. On account of lack of any significant reductions in bank rates by RBI, your Company's average cost of debt has continued to range between 12.5% and 13.0% in FY'15. Your Company believes that a significant level of this debt can be comfortably serviced and supported by the annuity/leasing business. Your Company was the first Company in India to issue Commercial Mortgage Backed Securities 'CMBS' amounting to Rs. 900 crore which were rated CRISIL[AA] with Stable outlook. The Company is planning another large issuance in the near future which will go a long way to improve the quality of debt and also substantially reduce costs.

(d) Rationalize costs and capital expenditure

Your Company will continue to incur capital expenditure for the completion of existing offices, SEZ and retail projects. Your Company plans to incur capital expenditure towards development of certain retail projects in the near to medium future. Further, in order to mitigate the risks relating to commodity inflation and rising labour costs, your Company had introduced an escalation clause in some of its development projects. Your Company believes that this will assist in partially mitigating an increase in construction costs in a fair, efficient and transparent manner.

(e) Rationalize its land reserves and increase brsence in strategic locations

Your Company strives to create destinations to provide world class living standards to its customers. To achieve the said goal, your Company continues to rationalize its land reserves and consolidate its holding in its core markets. As on 31st March, 2015, your Company's development potential over land/development rights owned/land for which appropriate arrangements including collaboration and joint development agreements exists with land owners was 290 msf.

(f) Continue to develop supporting infrastructure for its key developments

Your Company is proactively investing in certain infrastructure initiatives to support its key developments. Your Company believes these initiatives are crucial in the longer term to create a more sustainable and efficient development and differentiate itself from other developers.

Your Company is currently pursuing a joint project with HUDA, on a cost-sharing basis for upgrading  a road network between National Highway-8 and Sector 55/56 in Gurgaon. This project is slated to be completed in FY'17.

REVIEW OF OPERATIONS

Development Business

Your Company's development business primarily focuses on the development and sale of residential real estate which include plotted developments, houses, villas and apartments of varying sizes and integrated townships, with a focus on the high end, luxury residential developments. The development business also consists of certain offices, SEZ and shopping complexes, including those that are integral to the residential developments they are attached to.

Your Company has now primarily categorized its development business into 2 broad categories viz. Gurgaon DevCo and National DevCo. Both these geographical segments are independently responsible and accountable for all activities across the product value chain from acquisition of land, obtaining approvals, project planning and execution, to launch, sales & marketing and fi nal delivery of the developed property to the customers.

Residential Segment

Projects under construction

As of 31st March, 2015, your Company had 46 msf of Projects under Construction.  The table below provides a synopsis of the gross sales volumes and average prices for the Residential segment in FY'15.

Lease Business

Your Company's lease business involves leasing of its developed offices, SEZ and retail properties. One of the key objectives of its lease business is to achieve returns from investments in its portfolio properties within a targeted timeframe. Another key objective is to achieve high occupancy rates for the leased portfolio properties. The utilities and facility management business supports and complements the lease business

As of 31st March, 2015, your Company's lease business comprised completed offices, SEZ and retail properties with leasable area of approximately 29.4 msf, which yielded annuity income of approximately Rs.  2,200 crore.

Offices Segment

As of 31st March, 2015, the occupancy rate for your Company's leased offices, SEZ and retail portfolio properties was approximately 92.5%. Your Company intends to continue to strengthen and expand its relationships with its tenants, which it believes, will assist it in increasing the occupancy rate in its office properties. As the Company has almost expanded leasable space in DLF Cyber City in Gurgaon, it intends to start off new project to develop offi ce space across the NH-8 exbrssway (opposite Trident/Oberoi Hotels).

Retail Segment

Your Company has now evolved into one of India's leading developers of retail space in terms of the development of malls, shopping centres and markets. Your Company's malls have a superior tenant profile including certain anchor tenants, and are characterized by aesthetic design, high quality infrastructure and maintenance as well as leisure and entertainment options such as multiplex cinemas, food courts and restaurants. The locations of your Company's malls, as well as the mix of retail outlets within them, are carefully planned based on the profi l e of the relevant catchment areas as well as an understanding of consumer brferences, with the aim of attracting shoppers and ensuring an attractive mix of international brands, national retailers and leading local retailers. Your Company endeavours to cater to the expansion strategies of its tenants by providing them with retail space in a variety of brferred locations and encouraging them to take space in a number of its developments.

Your Company is currently awaiting the occupancy certifi cate of the Mall of India, Noida which would be India's biggest Mall. The commissioning of this mall was delayed due to delay in the notification of the NGT order.

As of 31st March, 2015, the occupancy rate for your Company's leased retail portfolio properties was approximately 89.7%.

Company's project execution status and development potential

Your Company completed a huge volume of approximately 13.5 msf of offi ce, IT SEZ, retail and residential projects in FY'15. As a result, the total area under construction was 46 msf as on 31st March, 2015.

Other Businesses

Hotels

Your Company continues to own two hotel properties viz.The Lodhi, which is an iconic hotel property located in New Delhi which it manages itself, and Hilton Garden Inn, Saket which is managed by Hilton.

OUTLOOK ON RISKS & CONCERNS

Your Company is exposed to a number of risks such as economic, regulatory, taxation and environmental risks and also the investment outlook towards Indian real estate sector. Some of the risks that may arise in its normal course of its business and impact its ability for future developments include inter-alia, credit risk, liquidity risk, counterparty risk, regulatory risk, commodity inflation risk and market risk. Your Company's chosen business strategy of focusing on certain key products and geographical segments is also exposed to the overall economic and market conditions. Your Company has implemented robust risk management policies and guidelines that set out the tolerance for risk and your Company's general risk management philosophy. Accordingly, your Company has established a framework and process to monitor the exposures to implement appropriate measures in a timely and effective manner.

FINANCIAL REVIEW

Revenue & Profitability

In FY'15, DLF reported consolidated revenues of Rs. 8,168 crore, a decrease of 17% over Rs. 9,790 crore in FY'14. EBIDTA stood at Rs. 3,543 crore, a decrease of 11% from Rs. 3,977 crore in the brvious year. Net profit after tax, minority interest and prior period items was at Rs. 540 crore, a decline of 16% from Rs.  646 crore. The EPS for FY'15 stood at Rs. 3.03 as compared to Rs.3.65 for FY'14.

The cost of revenues including cost of lands, plots, development rights, constructed properties and others decreased to Rs. 3,285 crore as against Rs. 3,880 crore in FY'14. Staff costs decreased to Rs. 349 crore versus Rs. 576 crore. Debrciation, amortization and impairment charges were at Rs. 545 crore versus Rs. 663 crore in FY'14. Finance costs deccreased to Rs. 2,304 crore from Rs. 2,463 crore in FY'14.

Balance Sheet

Your Company's Balance Sheet as on 31st March, 2015 reflected a healthy position with a net worth of Rs. 29,168 crore. The net worth of your Company witnessed a decrease of Rs. 26 crore from FY'14.

Net debt was Rs. 20,965 crore as on 31st March, 2015. The net debt to equity ratio was at 0.72.

CORPORATE FUNCTIONS

Information Technology

The key focus area for the function has been to review and strengthen the information security controls. An independent review was conducted and proposed recommendations in terms of further hardening the network infrastructure, both wired & wireless have been implemented. Also, with increased need of accessibility of applications including corporate e-mails on mobile devices, required policies have been implemented. Also, to take care of obsolescence of enterprise and end user hardware, same have been upgraded to ensure optimum applications performance. As a part of upgrade, standard application licenses have also been upgraded to ensure enterprise level protection and avoid any operational disruption.

We have also launched authentication based 'Customer Portal' for our residential property customers wherein they would be able to view transaction details pertaining to their property. Our endeavour is now to enrich this Portal to keep customers abreast with latest developments and also make it interactive.

Finance and Control

Your Company's finance function is responsible for correctness of all financial information, timely reporting of business metrics, ensuring complete financial propriety & control, effective risk management, treasury operations and institutional investor relations. The accounting works on an integrated ERP platform. The function is organized along fi nance teams for each business unit which work within well defi ned parameters and policies to ensure flexibility, speed and control at the same time. During the course of last year, the finance functions has outsourced many of its activities to a reputed third party agency, in line with global trends and to achieve best in class financial processes.

Regular brsentations of audit reports including significant audit fi ndings and compliance assurance along with the implementation status and resolution timelines is made to the Audit Committee of the Board by the internal auditors. Every quarter, the statutory auditors also make a brsentation of the summary of audit issues to the Audit Committee.

Human Resources

Our human capital continues to be the key driver for growth, effectiveness and success. Our Company's Human Resource agenda for the year focused on enhancing our organisation effectiveness and efficacy through building of lean core management teams and successfully outsourcing in different areas of operations including Project Delivery, Facility Management and Finance. Our focus was to ensure optimum utilisation and deployment of our talent pool aligned with our existing business plans and outlook. As on 31st March, 2015, our Company's 'on rolls' talent pool comprise of about 2180 employees (excluding 636 nos. of hospitality [(Lodhi/OTW), SETZ/DBSL)].

The Company's HR practices and policies are geared towards retention and capability building of our key talent. Career growth opportunities & lateral movements are provided as a part of the growth trajectory for our employees. Reward & retention strategy aims at strengthening alignment of performance and reward. Our Reward & Recognition programme has been designed to nurture and applaud outstanding contribution and build culture of meritocracy. To build organisational capabilities, training and e-learning initiatives at junior and middle levels are being run on an ongoing basis. In addition, for building leaders of tomorrow framework for partnering with best in class academia, renowned institutes in India and abroad has been worked out.

We continue to work towards employee well being through various welfare programmes. Our initiatives like outbound programmes, team connect sessions, HR Newsletter-SAMPARK, DLF Connect and HR Help lines drive greater employee connect and engagement & strengthen employee relations. Regular Employee Satisfaction survey is conducted as a part of DLF employee insight programme, which aims to give voice to Company's people & provide means to redress and communicate with our employees directly. The survey provides regular, meaningful & actionable feedback to the leaders.

Pursuant to the provisions of 'The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013' ['the Act'] and rules framed thereunder, we have aligned our existing policy to bring it in line with the provisions of the Act and also taken necessary steps to ensure compliance with the Act. Our Company has taken several initiatives through 'Jagruti' to connect with its women employees which constitute 10% of its workforce. It aims to promote wellbeing & create awareness on women safety  & related issues. Regular 'Open House Sessions' provide a platform to exchange views, concerns & information in this regard.

Legal

The Legal Department continues to be fully aligned with various businesses to provide timely legal support on various operations of your Company and support the businesses in proactively managing their legal and compliance risks by robust commercial documentation and assistance in understanding applicable laws and compliance thereof.

Your Company aims at continuous improvement of the processes which inter-alia include, reporting methodology of the legal matters, efficient engagement of high quality panel of third party lawyers, standardisation of key documents and strengthening internal guidelines and processes on documentation, legal matters and their reporting.

Cautionary Statement

The above Management Discussion and Analysis contains certain forward looking statements within the meaning of applicable security laws and regulations. These pertain to the Company's future business prospects and business profitability, which are subject to a number of risks and uncertainties and the actual results could materially differ from those in such forward looking statements. The risks and uncertainties relating to these statements include, but are not limited to, risks and uncertainties, regarding fluctuations in earnings, our ability to manage growth, competition, economic growth in India, ability to attract and retain highly skilled professionals, time and cost over runs on contracts, government policies and actions with respect to investments, fiscal deficits, regulation etc. In accordance with the Code of Corporate Governance approved by the Securities and Exchange Board of India, shareholders and readers are cautioned that in the case of data and information external to the Company, no rebrsentation is made on its accuracy or combrhensiveness though the same are based on sources thought to be reliable. The Company does not undertake to make any announcement in case any of these forward looking statements become materially incorrect in future or update any forward looking statements made from time to time on behalf of the Company.