UBS: Buy DLF Limited -Muted Q3, but expect pickup in Q4

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UBS Investment Research
DLF Limited
Muted Q3, but expect pickup in Q4
􀂄 Results inline with UBSe
Revenues grew 5% QoQ to Rs24.8bn (+22% YoY) with earnings up 11% QoQ on
better than expected EBITDA of Rs11.8 bn on back of higher margins of 48% vs.
39% in Q2 driven by higher profitability of plot sales in Q3. This was inline, but
lower than consensus, due to high minority interest from projects executed with PE
partners. We have lowered our FY11-12E by 8% factoring higher interest costs.

􀂄 Strong leasing/rental annuity; but muted sales and high debt levels remain
The quarter saw sustained leasing momentum (1.62 msf in Q3 vs. 1.56msf in Q2)
with strong rental annuity (Rs3.4bn in Q3; annualized Rs16.5bn). However, presales
were muted at 2.48 msf (vs 2.05 msf in Q2) due to approval delays; and net
debt remained high at Rs20.8bn (D/E at 0.78x). We do not foresee a risk of
interest/debt repayment defaults and expect an operational improvement in Q4.
􀂄 Key catalysts ahead
1. We believe strong pre-sales to its aggressive 8msf launch pipeline in Q4 across
NCR, Chandigarh and Kochi are key catalysts. 3. Sustained leasing momentum to
be a key driver of residential demand 2. Improved visibility on execution driven
cash flows and ongoing thrust on non-core asset sales (Rs4bn in Q3) to bring down
debt levels will be key triggers ahead.
􀂄 Valuation: Maintain Buy Rating and Rs 400 PT
We find the stock attractive, as its trading at peak discount of 56% disc to NAV.
We reiterate DLF as our top large cap pick in the India property sector with target
price of Rs400 based on target 20% discount to NAV