Anand Rathi:: Buy DB Realty 3QFY11 – As expected

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DB Realty
3QFY11 – As expected; Buy
3QFY11 margin improved as sales realization increased more
than costs actually expended. We expect margin to slide,
however, as construction progresses, since costs have increased.
Management guided to a cautious 2-3 quarters. Sales collection
is 43% of the value sold. We maintain our Buy, with a Mar ’12e
price target of `299.

 3QFY11 results. Although DBRL made adjustments for the rise
in costs, revenue recognition came from the sales completed and
the actual cost; hence, margin improved. Cost of two projects rose
further and margin would be squeezed as construction progresses.
Debt reduced by ~2.29bn, given the pre-payment of certain loans.
 Conference call highlights. Management sounded cautious on
volumes for the coming two quarters, in light of rate tightening
and prices. The company expects prices to correct ~10%. With
the new acquisitions, the focus would be on paying `8.02bn, the
premium for the Bandra (E) project.
 Operations update. In 3QFY11, DBRL sold 1.17m sqft for
`9.7bn. More than half of the sales volume arose from TDR.
DBRL soft-launched five projects in the quarter and saw marginal
slowdown in volume at its South-Central Mumbai projects vs.
sustained volume in suburbs. Of the sales of `71bn till Dec ’10,
receivables stand at `30.3bn.
 Valuation. Our Mar ’12e NAV is `374, with price target of `299.
At CMP, the stock trades at 0.9x Mar ’12e PBV.