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Revenues and PAT significantly ahead
DLF reported revenues of INR 24.8 bn and PAT of INR 4.7 bn, in line with
consensus but above our revenue and PAT estimates of INR 18.5 bn and INR 3.6
bn, respectively. EBITDA margins improved significantly Q-o-Q by 830 bps to
47.5% due to higher share of revenue bookings from Gurgaon plot sales and
change from an adverse product mix in Q2FY11.
Residential sales pick up aided by plot sales; new launches key
DLF reported incremental bookings of 2.48 msf in the current quarter versus
~4msf in H1FY11 taking YTD sales to ~6.5 msf. DLF plans to launch ~8 msf of
new projects in the medium-term (includes ~5 msf of plots). We believe
procuring timely approvals and right pricing as the key for attaining our volumes
estimates for FY11-12E at ~9 msf and ~11 msf, respectively.
Traction in leasing the positive takeaway
The company signed new leases of 1.62 msf lease during the quarter, taking the
9MFY11 total leasing to 4.2 msf. DLF now has a total lease portfolio of 23.69 msf
of which 22.39 msf is office space yielding rent of INR 2.9 bn in Q3FY11 and 1.3
msf is retail space yielding rent of INR 0.5 bn in the current quarter. In addition,
DLF has ~3 msf of presigned leases which would be operationalised over the
next 18-24 months, boosting their annuity business.
Debt increases during quarter; land acquisition and rentco capex a drag
The company’s net debt remained increased marginally to INR 207 bn on
account of dividend payments (INR 6.06 bn), redemption of preference shares
(INR 4.5 bn) and capex (INR 5 bn). The management guides that the company
is likely to spend INR 3.5-4 bn/quarter over the next 2-3 quarters towards land
acquisition in addition to capex on readying commercial assets. Delayed
launches / inabililty to monetize / weak response to launches can exert
significant pressure on cash flows of the company if the company continues to
acquire land / incur capex.
Outlook and valuations: Attractive post correction; upgrade to ‘BUY’
While the sector faces headwinds in terms of policy risk and liquidity / cost
pressures, we believe post sharp correction of 25% from December 2010 levels,
the stock is attractively valued and at CMP of INR 222/share, the stock trades at
32% discount to our FY12 NAV of INR 326/share. Hence, we upgrade the stock
to ‘BUY’ recommendation and rate it ‘Sector Performer’ on relative returns.
Company Description
DLF, incorporated in 1963, is one of the largest real estate development companies in
India, with a focus on residential, retail and commercial construction activities. The
company is promoted by Mr. K. P. Singh who has four decades of experience in the
Indian real estate industry. DLF went public in 2007 with the issue of ~175 mn shares at
INR 525/share.
Investment Theme
~80% of land bank in super metros, metros
DLF is the leader in the Indian real estate industry in terms of developable area. It has a
land bank of 399 msf of saleable area, out of which, majority is in super metros and
metros. The company has an established presence across property development verticals,
with a balanced project portfolio.
Land bank valuation
We believe there is a distinct shift in the valuation approach for real estate companies.
Real estate valuations have seen an entire cycle of being valued on a land bank valuation
basis, to that of DCF based NAV to a book value based valuation as the global markets
went into a tailspin. The land bank valuation approach was justified in a market that was
awash in liquidity. We see a similar investment environment emerging, where again
valuations for real estate companies would be on the basis of the land bank value, if it
were sold in smaller chunks – assuming all can be sold.
Key Risks
Rising debt a key concern
The debt of DLF has increased sharply post the merger of Caraf and the buyout of the
CCPS. The current net debt is INR 207 bn of which over INR 100 bn of debt is to be
repaid over next 3 years. The company is planning asset monetization to help reduce
debt; however, the company has slipped / dithered in its asset monetisation plan. The
company is targeting asset monetization of INR 16 bn over the next 12 - 18 months.
While DLF’s operational cash flows are seen as adequate to repay its’ debt obligations,
the absolute high level of debt can be a concern in a deteriorating / volatile environment.
Liquidity risk
DLF has witnessed delays in asset monetization during the year, as against the target set
out at the beginning of the year. The year that went by was clearly a year of excess
liquidity in the system. Incrementally, there is a debate on withdrawal of the stimulus.
While we do not foresee a rapid exit, a sooner than expected exit can impair the asset
monetization and debt deleveraging plan of DLF. In a fading liquidity scenario, the high
leverage of DLF can be a significant cause of concern.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Revenues and PAT significantly ahead
DLF reported revenues of INR 24.8 bn and PAT of INR 4.7 bn, in line with
consensus but above our revenue and PAT estimates of INR 18.5 bn and INR 3.6
bn, respectively. EBITDA margins improved significantly Q-o-Q by 830 bps to
47.5% due to higher share of revenue bookings from Gurgaon plot sales and
change from an adverse product mix in Q2FY11.
Residential sales pick up aided by plot sales; new launches key
DLF reported incremental bookings of 2.48 msf in the current quarter versus
~4msf in H1FY11 taking YTD sales to ~6.5 msf. DLF plans to launch ~8 msf of
new projects in the medium-term (includes ~5 msf of plots). We believe
procuring timely approvals and right pricing as the key for attaining our volumes
estimates for FY11-12E at ~9 msf and ~11 msf, respectively.
Traction in leasing the positive takeaway
The company signed new leases of 1.62 msf lease during the quarter, taking the
9MFY11 total leasing to 4.2 msf. DLF now has a total lease portfolio of 23.69 msf
of which 22.39 msf is office space yielding rent of INR 2.9 bn in Q3FY11 and 1.3
msf is retail space yielding rent of INR 0.5 bn in the current quarter. In addition,
DLF has ~3 msf of presigned leases which would be operationalised over the
next 18-24 months, boosting their annuity business.
Debt increases during quarter; land acquisition and rentco capex a drag
The company’s net debt remained increased marginally to INR 207 bn on
account of dividend payments (INR 6.06 bn), redemption of preference shares
(INR 4.5 bn) and capex (INR 5 bn). The management guides that the company
is likely to spend INR 3.5-4 bn/quarter over the next 2-3 quarters towards land
acquisition in addition to capex on readying commercial assets. Delayed
launches / inabililty to monetize / weak response to launches can exert
significant pressure on cash flows of the company if the company continues to
acquire land / incur capex.
Outlook and valuations: Attractive post correction; upgrade to ‘BUY’
While the sector faces headwinds in terms of policy risk and liquidity / cost
pressures, we believe post sharp correction of 25% from December 2010 levels,
the stock is attractively valued and at CMP of INR 222/share, the stock trades at
32% discount to our FY12 NAV of INR 326/share. Hence, we upgrade the stock
to ‘BUY’ recommendation and rate it ‘Sector Performer’ on relative returns.
Company Description
DLF, incorporated in 1963, is one of the largest real estate development companies in
India, with a focus on residential, retail and commercial construction activities. The
company is promoted by Mr. K. P. Singh who has four decades of experience in the
Indian real estate industry. DLF went public in 2007 with the issue of ~175 mn shares at
INR 525/share.
Investment Theme
~80% of land bank in super metros, metros
DLF is the leader in the Indian real estate industry in terms of developable area. It has a
land bank of 399 msf of saleable area, out of which, majority is in super metros and
metros. The company has an established presence across property development verticals,
with a balanced project portfolio.
Land bank valuation
We believe there is a distinct shift in the valuation approach for real estate companies.
Real estate valuations have seen an entire cycle of being valued on a land bank valuation
basis, to that of DCF based NAV to a book value based valuation as the global markets
went into a tailspin. The land bank valuation approach was justified in a market that was
awash in liquidity. We see a similar investment environment emerging, where again
valuations for real estate companies would be on the basis of the land bank value, if it
were sold in smaller chunks – assuming all can be sold.
Key Risks
Rising debt a key concern
The debt of DLF has increased sharply post the merger of Caraf and the buyout of the
CCPS. The current net debt is INR 207 bn of which over INR 100 bn of debt is to be
repaid over next 3 years. The company is planning asset monetization to help reduce
debt; however, the company has slipped / dithered in its asset monetisation plan. The
company is targeting asset monetization of INR 16 bn over the next 12 - 18 months.
While DLF’s operational cash flows are seen as adequate to repay its’ debt obligations,
the absolute high level of debt can be a concern in a deteriorating / volatile environment.
Liquidity risk
DLF has witnessed delays in asset monetization during the year, as against the target set
out at the beginning of the year. The year that went by was clearly a year of excess
liquidity in the system. Incrementally, there is a debate on withdrawal of the stimulus.
While we do not foresee a rapid exit, a sooner than expected exit can impair the asset
monetization and debt deleveraging plan of DLF. In a fading liquidity scenario, the high
leverage of DLF can be a significant cause of concern.
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