DLF-FY2011E sales plan lowered: Kotak Sec

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DLF (DLFU)
Property
FY2011E sales plan lowered, leasing activity better than expected. DLF reported
2QFY11 revenues of Rs24 bn (+35% yoy, +17% qoq) but EBITDA margin at 39.2%
surprised negatively. Debt declined marginally while operational cash-flow remained
positive. Key negative is lower sales (12 mn sq. ft) that DLF is targeting for FY2011E
while a pick-up in leasing for office space is the positive takeaway. We maintain our
ADD rating with a target price of Rs375/share





EBITDA margin declines 900 bps qoq and 1,300 bps yoy
Revenues at Rs23.7 bn grew at a healthy 35% yoy and 17% qoq, EBITDA margins declined to
39.2% led by (1) a 660 bps increase in construction cost as a proportion of revenues, (2) 200 bps
increased in other expenditure and (3) 50 bps in staff costs. A similar decline in margins in 3QFY10
was reversed in 4QFY10 and we would await details from the company on whether any of this
margin decline is structural in nature. EBITDA at Rs9.3 bn (+2% yoy and -5% qoq) and PAT (-5%
yoy, +2% qoq) were impacted by marginally lower-than-expected revenues with lower margins.

Lowers FY2011E sales guidance to 12 mn sq. ft versus 15 mn sq. ft earlier
DLF seems to have revised its FY2011E sales target down to 12 mn sq. ft from 15 mn sq. ft as of
end-1QFY11. With 1HFY11 sales volume of 4 mn sq.ft, this still would mean doubling of sales
volume in 2HFY11 which is expected to be led by (1) NTC mills launch and (2) plotted
development launches of 4-5 mn sq. ft in Gurgaon and Chandigarh.

Key triggers: Development launches and further evidence of commercial recovery
DLF intends to sell 2X volume (across residential and office space) in 2HFY11E versus actual sales in
1HFY11– progress and visibility of these launches (and particularly NTC Mills in Mumbai) is a
potential trigger over next six months. Leasing for office space in 1HFY11 is better than our
expectations and DLF has started new construction of 0.9 mn sq. ft indicating higher confidence in
volume recovery. With 16 mn sq. ft of rental assets under construction, DLF has the highest
leverage across our coverage universe to a pick-up in leasing activity.