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DLF (DLF.BO)
Buy: Q2FY11 - Top Line Beats Estimates, Margins Disappoint
Revenue grows 17% QoQ/35% YoY — Topline of Rs 23.7bn beat our estimates.
Increase in input costs and staff costs depressed the margins to 39% vs 48% in
Q1. Management opines this as “a temporary drop owing to variation in product
mix” and maintains annual EBITDA margins guidance of a steady 45-50%. Higher
other income and lower taxes diluted the impact of margin loss and higher interest
cost seen in this quarter. PAT came in line with our expectations of ~Rs4.1bn.
Resi Pre-sales likely to pick up going forward … — 1) Residential pre-sales were
slow at 2.08 msf in 2Q (vs. 1.9msf in Q1 and 2.74 msf yoy 2) Co. has launched
2.37msf in Q2 in Panchkula and Shimla (of which 0.51msf have been sold),
increasing the projects under construction to 57msf. Having pre-sold ~4.0msf in
IHFY11, company still maintains its sales target of >12msf in FY12 as it expects
more launches in H2 as approvals come through.
… Commercial leasing showing strength — Commercial leasing is seeing good
momentum – ~2.01 msf fresh leases booked in Q2 (vs 1.17msf in 1Q). 1HFY11
has recorded net of leasing of ~2.5msf against an annual target of 3-4msf. Mgmt
is looking at an annual leasing income of ~Rs 17bn in FY11. Execution has picked
up- handed over 1.32 msf of office area in Q2 (vs 0.86 in Q1 and nil in Q2FY10).
Other Key Updates — 1) Non core asset sales came in at Rs 4.1bn (Rs. 7bn for
1HFY11), against a 12-18 months target of ~Rs 20bn, 2) Redeemed Rs 11.7bn of
convertible preference shares, as indicated in last earnings call, funding from
liquidating investments. Another Rs 16.7bn is debt repayment is due in FY11. Net
debt/equity at 0.73x and cost of debt maintained at 10.5%, 3) Management has
indicated net Cash flow from operations is expected to be Rs 7.5-10.0bn/quarter.
Maintain Buy — Visibility of strong rental annuity pipeline, momentum in leasing
activity, residential sales should pick up – we continue to find DLF attractive.
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