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DLF
No non-real estate issues, but operations yet to improve
DLF’s 3Q results were flat yoy, although debt rose as cash from
operations was utilized in land replenishment and preferenceshare
redemption. Sales & leasing momentum sustained, with
~`15bn worth of stock sold and 1.62m sqft leased. Management
guided for big launches in 4Q. We lower our Mar ’12e price
target to `309 from `368. Maintain Buy.
Flat 3QFY11. DLF’s 3Q revenue was `24.8bn and PAT was
`4.7bn (vs. our estimate of `22bn and `4.2bn respectively).
Although DLF generated cash from operations, given some land
consolidation and preference-share redemption, debt increased by
`3.1bn. Also, there is a new tax assessment for `11.8bn.
Operations update. Space of 2.48m sqft was sold for ~`15bn in
3Q; but launches were low, citing approvals. Leasing maintained
momentum with 1.62m sqft leased (cumulative 4.3m sqft
YTDFY11 has already crossed FY11 guidance). Launch plans of
8m sqft (only post approvals) would provide the required volume
push; but we expect management to fall short of FY11 sales
guidance of 12-15m sqft.
Change in estimates. For DLF, too, we change our approach (as
we have for the sector) and consider only projects paid for and in
possession of DLF. Hence, we cut the new land acquisition in
Gurgaon and re-adjust our land portfolio, shifting certain land
parcels to residual land bank, failing clarity about launch.
Valuation and risks. Our Mar ’12e NAV now stands at `309. At
CMP, the stock trades at 1.4x Mar ’12e PBV. Risks. Delay in
launches and slowdown in sales
Results Review
DLF’s 3Q revenue stood at `24.8bn and PAT at `4.7bn (vs. our
estimate of `22bn and `4.2bn respectively). Although the company
made cash in operations, given some land consolidation and
preference-share redemption, debt increased by `3.1bn.
3QFY11 results review
Revenue in 3QFY11 was recognized from projects under construction,
lease assets and utilities as well as from the new plotted launch in
Gurgaon. More contribution from high-margin projects (plotted
development, city-centre projects and commercial complexes) leads to
increase in gross margin, to 61.6% from 57.2% in 2QFY11. But we expect
margin to range at 46-50% going forward on account of the product mix.
Although DLF continued to generate cash from operations, incremental
cash was utilized in redeeming preference shares (of `4.5bn) and land
replenishment at Chandigarh and New Gurgaon (`5bn).
DLF and its subsidiaries have received annual assessment orders, creating
additional demand of ~`11.8bn. The company has not made any
provision for this, pending decision from the Appellate Court. In the past,
DLF has paid ~`4bn in a similar case.
Debt – Another quarter of increase
Debt increased by `3.1bn in 3QFY11, on account of redemption of
CCPSs and purchase of land. Management intends reducing debt by Mar
’12 to D/E of 0.5-0.6x. In the short term, debt reduction would not only
depend on continued positive cash flow from operations, but also on
progress on the financing (some redemption of preference shares
complete) and investing activities (asset/land sales) fronts.
More plotted launches could help speed up operational cash generation as
margin is high and DLF has proven its brand equity by maintaining 100%
presales at higher-than-market rates in Gurgaon.
Operations update
Sales stood at 2.48m sqft for ~`15bn; but launches were low, citing
approvals. Leasing maintained momentum with 1.62m sqft leased
(cumulative 4.3m sqft YTDFY11 has already crossed FY11
guidance). Launch plans of 8m sqft (only post approvals) would
provide the required volume push; but we expect management to
fall short of FY11 sales guidance of 12-15m sqft.
Clarity on launch plans for next few months
Development vertical: Launches should go up
Sales have been improving for the past three quarters – for every quarter, a
new/differentiated launch is happening at different locations. 3QFY11
saw DLF launching plotted development in Gurgaon and selling ~1m sqft
(phase-1) of a proposed 2m sqft earmarked for plotted development. Sales
momentum was also maintained at its mid-income projects in Chennai and
Bangalore, with ~0.5m sqft sold. On the commercial complexes front, the
company launched a new project in Gurgaon, with pre-sales already having
commenced.
Sales momentum is high, given complete halt of sales in Hyderabad, Goa
and nearly-exhausted inventory at Kolkata.
Although sales run-rate has been relatively better than its peers in the
native market, launches have missed its guidance. Key reason cited by the
management for this are regulatory approvals and DLF’s stance to launch
a project only post procuring all approvals. DLF has given clarity on
launches of ~8m sqft in the coming months with approvals for most in
place.
Besides clarity on launches on aforementioned projects, DLF has got
environmental clearance for its maiden project at Mumbai. The mammoth
project is likely to have an estimated sellable area of +7m sqft and entails
higher FSI from Public Parking Scheme (approvals already in place).
Although DLF will see higher margin in the project due to higher sellable
area and lower acquisition costs, volume will be governed by selling price
of DLF and peers. For its other project at Mumbai – redevelopment of
phase 1 is nearing completion as regards re-hab construction, and shifting
of families is likely to commence by 2HCY12.
For its super-luxury properties at Delhi, DLF soft-launched Kings Court,
Greater Kailash (0.27m sqft) in Jan ’11. Its high-value residential project at
Chanakyapuri, we believe, would be further delayed.
Rental vertical: 9MFY11 leasing beats FY11 guidance
DLF leased 1.65m sqft during 3QFY11, totaling to 4.3m sqft for 9MFY11.
Contribution primarily came from Cyber City, Gurgaon and its other
SEZs at Chennai and Hyderabad. Of the 23.3m sqft of space completed,
~20m sqft stands leased. Leasing over the past few quarters exhibits
DLF’s brand equity in the native NCR market. But, we maintain lease
rentals in most SBDs to be low, given that the oversupply situation is likely
to continue.
Change in estimates and valuation
In line with changes to our approach to valuation for the sector, we
consider only projects paid for and in possession for DLF too.
Hence, we remove the new land acquisition in Gurgaon owing to
certain issues. We re-adjust our land portfolio area for the company
and shift certain land parcels to residual land bank, failing clarity
about launch. This impacts the NAV by 16%.
Valuation
We remove the 350-acre project won by DLF last year for `17bn, 10% of
which has been paid; land conversion and acquisition is yet to take place.
We re-visit construction costs for high-rises at Mumbai, where DLF has
two projects – both proposed to be over 80 floors and for which
redevelopment and pre-construction work is ongoing.
We account for land/projects, where clarity about launches over the next
two years is weak, at their residual value, at a premium to book
value/acquisition cost.
Risks
Inability to launch projects quickly will affect our NAV and cash flow
estimates.
Market slowdown, especially in Mumbai, can affect medium-term
sales.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
DLF
No non-real estate issues, but operations yet to improve
DLF’s 3Q results were flat yoy, although debt rose as cash from
operations was utilized in land replenishment and preferenceshare
redemption. Sales & leasing momentum sustained, with
~`15bn worth of stock sold and 1.62m sqft leased. Management
guided for big launches in 4Q. We lower our Mar ’12e price
target to `309 from `368. Maintain Buy.
Flat 3QFY11. DLF’s 3Q revenue was `24.8bn and PAT was
`4.7bn (vs. our estimate of `22bn and `4.2bn respectively).
Although DLF generated cash from operations, given some land
consolidation and preference-share redemption, debt increased by
`3.1bn. Also, there is a new tax assessment for `11.8bn.
Operations update. Space of 2.48m sqft was sold for ~`15bn in
3Q; but launches were low, citing approvals. Leasing maintained
momentum with 1.62m sqft leased (cumulative 4.3m sqft
YTDFY11 has already crossed FY11 guidance). Launch plans of
8m sqft (only post approvals) would provide the required volume
push; but we expect management to fall short of FY11 sales
guidance of 12-15m sqft.
Change in estimates. For DLF, too, we change our approach (as
we have for the sector) and consider only projects paid for and in
possession of DLF. Hence, we cut the new land acquisition in
Gurgaon and re-adjust our land portfolio, shifting certain land
parcels to residual land bank, failing clarity about launch.
Valuation and risks. Our Mar ’12e NAV now stands at `309. At
CMP, the stock trades at 1.4x Mar ’12e PBV. Risks. Delay in
launches and slowdown in sales
Results Review
DLF’s 3Q revenue stood at `24.8bn and PAT at `4.7bn (vs. our
estimate of `22bn and `4.2bn respectively). Although the company
made cash in operations, given some land consolidation and
preference-share redemption, debt increased by `3.1bn.
3QFY11 results review
Revenue in 3QFY11 was recognized from projects under construction,
lease assets and utilities as well as from the new plotted launch in
Gurgaon. More contribution from high-margin projects (plotted
development, city-centre projects and commercial complexes) leads to
increase in gross margin, to 61.6% from 57.2% in 2QFY11. But we expect
margin to range at 46-50% going forward on account of the product mix.
Although DLF continued to generate cash from operations, incremental
cash was utilized in redeeming preference shares (of `4.5bn) and land
replenishment at Chandigarh and New Gurgaon (`5bn).
DLF and its subsidiaries have received annual assessment orders, creating
additional demand of ~`11.8bn. The company has not made any
provision for this, pending decision from the Appellate Court. In the past,
DLF has paid ~`4bn in a similar case.
Debt – Another quarter of increase
Debt increased by `3.1bn in 3QFY11, on account of redemption of
CCPSs and purchase of land. Management intends reducing debt by Mar
’12 to D/E of 0.5-0.6x. In the short term, debt reduction would not only
depend on continued positive cash flow from operations, but also on
progress on the financing (some redemption of preference shares
complete) and investing activities (asset/land sales) fronts.
More plotted launches could help speed up operational cash generation as
margin is high and DLF has proven its brand equity by maintaining 100%
presales at higher-than-market rates in Gurgaon.
Operations update
Sales stood at 2.48m sqft for ~`15bn; but launches were low, citing
approvals. Leasing maintained momentum with 1.62m sqft leased
(cumulative 4.3m sqft YTDFY11 has already crossed FY11
guidance). Launch plans of 8m sqft (only post approvals) would
provide the required volume push; but we expect management to
fall short of FY11 sales guidance of 12-15m sqft.
Clarity on launch plans for next few months
Development vertical: Launches should go up
Sales have been improving for the past three quarters – for every quarter, a
new/differentiated launch is happening at different locations. 3QFY11
saw DLF launching plotted development in Gurgaon and selling ~1m sqft
(phase-1) of a proposed 2m sqft earmarked for plotted development. Sales
momentum was also maintained at its mid-income projects in Chennai and
Bangalore, with ~0.5m sqft sold. On the commercial complexes front, the
company launched a new project in Gurgaon, with pre-sales already having
commenced.
Sales momentum is high, given complete halt of sales in Hyderabad, Goa
and nearly-exhausted inventory at Kolkata.
Although sales run-rate has been relatively better than its peers in the
native market, launches have missed its guidance. Key reason cited by the
management for this are regulatory approvals and DLF’s stance to launch
a project only post procuring all approvals. DLF has given clarity on
launches of ~8m sqft in the coming months with approvals for most in
place.
Besides clarity on launches on aforementioned projects, DLF has got
environmental clearance for its maiden project at Mumbai. The mammoth
project is likely to have an estimated sellable area of +7m sqft and entails
higher FSI from Public Parking Scheme (approvals already in place).
Although DLF will see higher margin in the project due to higher sellable
area and lower acquisition costs, volume will be governed by selling price
of DLF and peers. For its other project at Mumbai – redevelopment of
phase 1 is nearing completion as regards re-hab construction, and shifting
of families is likely to commence by 2HCY12.
For its super-luxury properties at Delhi, DLF soft-launched Kings Court,
Greater Kailash (0.27m sqft) in Jan ’11. Its high-value residential project at
Chanakyapuri, we believe, would be further delayed.
Rental vertical: 9MFY11 leasing beats FY11 guidance
DLF leased 1.65m sqft during 3QFY11, totaling to 4.3m sqft for 9MFY11.
Contribution primarily came from Cyber City, Gurgaon and its other
SEZs at Chennai and Hyderabad. Of the 23.3m sqft of space completed,
~20m sqft stands leased. Leasing over the past few quarters exhibits
DLF’s brand equity in the native NCR market. But, we maintain lease
rentals in most SBDs to be low, given that the oversupply situation is likely
to continue.
Change in estimates and valuation
In line with changes to our approach to valuation for the sector, we
consider only projects paid for and in possession for DLF too.
Hence, we remove the new land acquisition in Gurgaon owing to
certain issues. We re-adjust our land portfolio area for the company
and shift certain land parcels to residual land bank, failing clarity
about launch. This impacts the NAV by 16%.
Valuation
We remove the 350-acre project won by DLF last year for `17bn, 10% of
which has been paid; land conversion and acquisition is yet to take place.
We re-visit construction costs for high-rises at Mumbai, where DLF has
two projects – both proposed to be over 80 floors and for which
redevelopment and pre-construction work is ongoing.
We account for land/projects, where clarity about launches over the next
two years is weak, at their residual value, at a premium to book
value/acquisition cost.
Risks
Inability to launch projects quickly will affect our NAV and cash flow
estimates.
Market slowdown, especially in Mumbai, can affect medium-term
sales.
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