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DLF (DLFU)
Property
Ready, steady, go? Our outlook for the stock is contingent on (1) performance versus
launch targets in 4QFY11E and (2) debt reduction. Prices, execution and even
commercial up-tick will be secondary factors until these two are visible. Press reports
and/or channel checks indicate that DLF will launch the Delhi project soon while there is
progress towards launch for both the plotted developments in Chandigarh. We retain
ADD with a target price of Rs265/share at-par with our March 2012E NAV.
Finally a launch—press reports and channel checks indicate DLF will launch GK-II project this week
DLF seems all set to launch the planned super luxury residential project ‘King’s Court’ (300,000 sq.
ft) at Greater Kailash-II in South Delhi at rates in the range of Rs35,000-40,000 per sq. ft with total
sales value in the range of Rs10-12 bn. A single project launch for a company of this size would
not be remarkable but for it being the first vertical development launch in five months (at least)—
DLF’s launches in FY2011E have been lagging internal targets and external estimates. King’s Court
puts the company on the road towards its planned 8 mn sq. ft target for 4QFY11E.
Seven more launches planned in 4QFY11E but time is running out
We have no insight into DLF’s internal plans apart from its publicly stated launching of 8 mn sq. ft
in 4QFY11E, however, it appears that the company will need more than a launch a week to
achieve its target, a tall task. We would be enthused with DLF launching anything above 4-5 mn
sq. ft in FY2011E, especially if all the residential (plotted + group housing) projects are launched.
Plotted developments would be higher margin with a faster cash inflow and quicker revenue
booking while residential projects (1.6 mn sq. ft at Gurgaon and Kochi) would likely witness better
sales compared to the planned commercial projects (1.5 mn sq. ft).
Visibility on debt reduction to take at least two quarters
Debt reduction over FY2011E has been slower than expected for a variety of reasons (1) delay in
launches and hence cash inflow (6.5 mn sq. ft versus around 10 mn sq. ft expected), (2) slowerthan-
expected disposal of non-core assets (no progress on Aman resorts and wind power assets)
and (3) cash flow diverted to extinguishing preference shares (Rs5.3 bn) which are higher cost
(12% non-tax deductible dividend). Even if DLF manages to launch a substantial proportion of its
planned launches, given that these sales will likely take place close to quarter end, we believe debt
reduction will be visible only by end-1QFY12E.
More than a launch a week to meet target of 8 mn sq. ft for 4QFY11E
DLF intends to launch three plotted residential developments, three residential constructions
and two commercial developments by end-March 2011. These projects include (1) 1 mn sq.
ft plotted development at Panchkula, Chandigarh, (2) 2 mn sq. ft at Mullanpur, Chandigarh,
and (3) another 1 mn sq. ft plotted development at Gurgaon; besides three housing projects
in (1) Delhi (300,000 sq. ft), (2) Marine Drive at Kochi (0.6 mn sq. ft), and (3) New Gurgaon
(1 mn sq. ft).
Based on comparable projects and some details available, we estimate a total of Rs45-50
bn of sales potential from these launches
While DLF follows an aggressive accounting policy (including land cost for percentage
completion), revenue recognition and cash inflow might be deferred to 1QFY12E as sales
are likely to happen only in March 2011
Channel checks and media reports indicate some movement towards launch in the super
luxury residential project in Delhi and both the plotted developments in Chandigarh
which could have combined sales of Rs16 bn
Other factors—pricing, Mumbai launch and commercial up-tick
Prices. We expect prices to remain stable and might even inch downwards to capture
demand.
Mumbai launch is 2-3 quarters away. DLF indicated that the NTC Mill project launch (total
4 mn sq. ft) is 2-3 quarters away as they are finalizing contractors, design and the launch
and construction schedule.
Commercial up-tick. Apart from a qoq up-tick in actual leasing numbers, recent steps by
developers increase confidence with even Unitech mentioning an up-tick and DLF actually
planning to launch 1.5 mn sq. ft for sale in 4QFY11E.
Our NAV is Rs265/share
Key assumptions behind our valuation model are:
Gross developable area at 400 mn sq. ft in line with numbers disclosed by DLF in 3QFY11
Sales of 9.2 mn sq. ft for FY2011E, 12.8 mn sq. ft for FY2012E and 17.1 mn sq. ft for
FY2013E
Steady 5% appreciation in property prices and in construction cost except for an
adjustment for a few high-value large projects (Mumbai and Chanakyapuri) selling price
downwards and cost estimates upwards with the view that either DLF will have to lower
prices or delay launch
WACC to 15% (within our band of 14-18%) and cap rate to 11% (band of 10-12% for
the sector)
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
DLF (DLFU)
Property
Ready, steady, go? Our outlook for the stock is contingent on (1) performance versus
launch targets in 4QFY11E and (2) debt reduction. Prices, execution and even
commercial up-tick will be secondary factors until these two are visible. Press reports
and/or channel checks indicate that DLF will launch the Delhi project soon while there is
progress towards launch for both the plotted developments in Chandigarh. We retain
ADD with a target price of Rs265/share at-par with our March 2012E NAV.
Finally a launch—press reports and channel checks indicate DLF will launch GK-II project this week
DLF seems all set to launch the planned super luxury residential project ‘King’s Court’ (300,000 sq.
ft) at Greater Kailash-II in South Delhi at rates in the range of Rs35,000-40,000 per sq. ft with total
sales value in the range of Rs10-12 bn. A single project launch for a company of this size would
not be remarkable but for it being the first vertical development launch in five months (at least)—
DLF’s launches in FY2011E have been lagging internal targets and external estimates. King’s Court
puts the company on the road towards its planned 8 mn sq. ft target for 4QFY11E.
Seven more launches planned in 4QFY11E but time is running out
We have no insight into DLF’s internal plans apart from its publicly stated launching of 8 mn sq. ft
in 4QFY11E, however, it appears that the company will need more than a launch a week to
achieve its target, a tall task. We would be enthused with DLF launching anything above 4-5 mn
sq. ft in FY2011E, especially if all the residential (plotted + group housing) projects are launched.
Plotted developments would be higher margin with a faster cash inflow and quicker revenue
booking while residential projects (1.6 mn sq. ft at Gurgaon and Kochi) would likely witness better
sales compared to the planned commercial projects (1.5 mn sq. ft).
Visibility on debt reduction to take at least two quarters
Debt reduction over FY2011E has been slower than expected for a variety of reasons (1) delay in
launches and hence cash inflow (6.5 mn sq. ft versus around 10 mn sq. ft expected), (2) slowerthan-
expected disposal of non-core assets (no progress on Aman resorts and wind power assets)
and (3) cash flow diverted to extinguishing preference shares (Rs5.3 bn) which are higher cost
(12% non-tax deductible dividend). Even if DLF manages to launch a substantial proportion of its
planned launches, given that these sales will likely take place close to quarter end, we believe debt
reduction will be visible only by end-1QFY12E.
More than a launch a week to meet target of 8 mn sq. ft for 4QFY11E
DLF intends to launch three plotted residential developments, three residential constructions
and two commercial developments by end-March 2011. These projects include (1) 1 mn sq.
ft plotted development at Panchkula, Chandigarh, (2) 2 mn sq. ft at Mullanpur, Chandigarh,
and (3) another 1 mn sq. ft plotted development at Gurgaon; besides three housing projects
in (1) Delhi (300,000 sq. ft), (2) Marine Drive at Kochi (0.6 mn sq. ft), and (3) New Gurgaon
(1 mn sq. ft).
Based on comparable projects and some details available, we estimate a total of Rs45-50
bn of sales potential from these launches
While DLF follows an aggressive accounting policy (including land cost for percentage
completion), revenue recognition and cash inflow might be deferred to 1QFY12E as sales
are likely to happen only in March 2011
Channel checks and media reports indicate some movement towards launch in the super
luxury residential project in Delhi and both the plotted developments in Chandigarh
which could have combined sales of Rs16 bn
Other factors—pricing, Mumbai launch and commercial up-tick
Prices. We expect prices to remain stable and might even inch downwards to capture
demand.
Mumbai launch is 2-3 quarters away. DLF indicated that the NTC Mill project launch (total
4 mn sq. ft) is 2-3 quarters away as they are finalizing contractors, design and the launch
and construction schedule.
Commercial up-tick. Apart from a qoq up-tick in actual leasing numbers, recent steps by
developers increase confidence with even Unitech mentioning an up-tick and DLF actually
planning to launch 1.5 mn sq. ft for sale in 4QFY11E.
Our NAV is Rs265/share
Key assumptions behind our valuation model are:
Gross developable area at 400 mn sq. ft in line with numbers disclosed by DLF in 3QFY11
Sales of 9.2 mn sq. ft for FY2011E, 12.8 mn sq. ft for FY2012E and 17.1 mn sq. ft for
FY2013E
Steady 5% appreciation in property prices and in construction cost except for an
adjustment for a few high-value large projects (Mumbai and Chanakyapuri) selling price
downwards and cost estimates upwards with the view that either DLF will have to lower
prices or delay launch
WACC to 15% (within our band of 14-18%) and cap rate to 11% (band of 10-12% for
the sector)
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