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DLF Limited
Better times ahead
Having met with management today at our 15th Annual India Investor
Conference in New Delhi, these are some of our takeaways...
„ Office volumes remain strong and DLF expects that in steady state they
should manage to lease around 4-5mn sq ft annually. Though rentals remain
soft due to supply demand dynamics, they do expect the rentals to start
moving up in 2HFY12. They plan to look for REIT listing of DAL only by
2HFY12 when around 90% of the 13mn sq ft is expected to be leased
(currently 8.5mn sq ft is generating rental while another 1.5mn sq ft leased)
„ DLF is confident on meeting its launch target of 8.5mn sq ft in 4Q and have
already received approvals for 4mn sq ft while the rest is expected by early
March. The volume remain healthy in residential though price increase is
expected to moderate going forward. The demand from end users are
unlikely to be impacted till mortgage rates hit 12%.Residential launches.
„ DLF remains focused on reducing debt, and believe that servicing the current
debt is not a challenge since more than half of the debt can be supported by
the annuity business. Management is looking to raise over Rs50bn in next 12
months through divestment in non-core assets including Aman Resorts (50%
stake for Rs15bn) and Wind (Rs15bn) and utilize for reducing leverage to
below 0.6x
„ The high inflation and rising interest rates remain the key challenge. DLF has
seen sharp increase in cost over last 12months particularly in cement, steel
and labour costs but are confident of sustaining 45-50% margin over medium
to longer term.
Price objective basis & risk
DLF Limited (XVDUF)
Our preferred valuation methodology is NAV, calculated by discounting the cash
flows from each of the real estate projects. Our price objective of Rs340 is
therefore based on our NAV of Rs340. We expect DLF to trade at its NAV
because of its benchmark position in the Indian real estate market, large size, and
well diversified land bank. Key assumptions underlying our NAV are WACC of
14.2%, capitalization rate of 11% and inflation of 5% from FY13 on both selling
price and construction costs. On a P/E basis, at our PO of Rs340, the stock would
trade at 22x FY12E earnings. Downside risks are lower than expected volume
and higher than expected debt.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
DLF Limited
Better times ahead
Having met with management today at our 15th Annual India Investor
Conference in New Delhi, these are some of our takeaways...
„ Office volumes remain strong and DLF expects that in steady state they
should manage to lease around 4-5mn sq ft annually. Though rentals remain
soft due to supply demand dynamics, they do expect the rentals to start
moving up in 2HFY12. They plan to look for REIT listing of DAL only by
2HFY12 when around 90% of the 13mn sq ft is expected to be leased
(currently 8.5mn sq ft is generating rental while another 1.5mn sq ft leased)
„ DLF is confident on meeting its launch target of 8.5mn sq ft in 4Q and have
already received approvals for 4mn sq ft while the rest is expected by early
March. The volume remain healthy in residential though price increase is
expected to moderate going forward. The demand from end users are
unlikely to be impacted till mortgage rates hit 12%.Residential launches.
„ DLF remains focused on reducing debt, and believe that servicing the current
debt is not a challenge since more than half of the debt can be supported by
the annuity business. Management is looking to raise over Rs50bn in next 12
months through divestment in non-core assets including Aman Resorts (50%
stake for Rs15bn) and Wind (Rs15bn) and utilize for reducing leverage to
below 0.6x
„ The high inflation and rising interest rates remain the key challenge. DLF has
seen sharp increase in cost over last 12months particularly in cement, steel
and labour costs but are confident of sustaining 45-50% margin over medium
to longer term.
Price objective basis & risk
DLF Limited (XVDUF)
Our preferred valuation methodology is NAV, calculated by discounting the cash
flows from each of the real estate projects. Our price objective of Rs340 is
therefore based on our NAV of Rs340. We expect DLF to trade at its NAV
because of its benchmark position in the Indian real estate market, large size, and
well diversified land bank. Key assumptions underlying our NAV are WACC of
14.2%, capitalization rate of 11% and inflation of 5% from FY13 on both selling
price and construction costs. On a P/E basis, at our PO of Rs340, the stock would
trade at 22x FY12E earnings. Downside risks are lower than expected volume
and higher than expected debt.
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