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DLF’s inability to reduce debt has been the main overhang on its share
price. While FY11 cash flows were masked by various PE buyouts, 1Q
FY12 was not an encouraging start to the year, as most of the operating
surplus during the Q got used up in retail mall/office construction. Going
ahead, for gearing to reduce materially, large-ticket asset monetizations
will need to go through. While news flow of late points to improved
visibility on this account (Rs15-20B), markets may remain skeptical until
these developments finally materialize.
Key highlights of the analyst call: 1) 1Q FY12 saw DLF generating
positive operating cash flow (after interest/ tax) but this was used up in
rather heavy rental capex (Rs3.3B) implying no surplus. 2) Management
is hopeful about seeing some traction on monetization of assets over the
next 2-3 quarters. Various news reports (e.g. Economic Times) have
indicated assets worth Rs15-20B (Noida/Pune IT Parks, insurance
business and land in Gurgaon) for which the company is in talks with
prospective buyers. 3) As of now the company will look to continue with
its strategy to do largely plotted sales to mitigate construction cost risks
and accelerate cash flows and do selective build out in rental business. It
will not be looking to sacrifice margins in the current environment.
1Q FY12 results recap: Reported profit of Rs3.6B came in lower than
expectations, primarily on account of lower other income and higherthan-
expected non-core losses. On a core RE EBITDA basis, results were
in-line, thanks to a healthy 47% reported EBITDA margin. This was on
account of a higher mix of plotted to mid-income project mix.
Estimate changes: We reduce our FY12/13 earnings assumptions by
~17% primarily to factor in higher interest cost and lower other income.
Our pre-sales assumption of Rs61B implies a 8% decrease from last
year’s level and is lower than the guidance level (Rs65-70B).
Correspondingly our normalized cash earnings based Mar-12 price target
of the company is revised down to Rs255.
Asset sales target of Rs70B over the next 2-3 years;
management guiding to an increased traction here
DLF achieved asset sales of Rs1.7B during 1Q. Incremental company guidance on
non-core asset sales is optimistic, in our view, with specific large ticket transactions
at advanced stages. Overall the company is looking to do asset sales of Rs70B over
the next 2-3 years.
Recent news flow on the sale of IT parks in Pune/Noida to PE players (Rs13B),
Gurgaon plot sale (Rs4B), and stake sale in the insurance business (Rs4.5B) points to
increased traction in asset sales.
While we factor in asset sales of Rs15B in FY12, the conclusion of these large-ticket
transactions can provide a boost to debt reduction plan. The company is guiding to
increased visibility on non-core assets sales over the next 2-3 quarters, which should
aid in debt reduction.
Table 1: DLF - Recent news flow on asset sales points to increased traction
Asset Recent news flow
Noida IT Park - In discussions with Blackstone to sell its IT Park in Pune (in JV with
Ackruti) for Rs9B.
Pune IT Park - In discussions to sell its stake in Noida land for Rs4B. 3C is co partner
in the project
Aman Resorts - Settlement of minority investors paves way for a strategic sale in the
business
Gurgaon Plots 2msf of group housing project for Rs4B
Insurance business - Looking to sell its stake to HCL group for Rs4.5B
Source: News reports (Economic Times)
Key operating highlights-
1. Development business - Sales bookings for the quarter stood at 2.2 msf
(~Rs 11B). This is against 1.9msf done in 1QFY11 and 3.8msf in 4Q FY11.
Sales during the quarter included Gurgaon plotted launch (1.1 msf), Indore
plotted project (0.2msf) and mid income projects (0.9msf). Full year
company target is around Rs 65-70B in value terms (JPMe- Rs61B).
2. Focus on plotted launches – Incremental launches are largely going to be
plotted launches to accelerate cash flows, counter the inflationary trends and
mitigate execution risks. Response to initial launches under the segment (in
Gurgaon sec 91/92) has been encouraging. In terms of launch plans, co. has
been looking to launch 10-12msf of projects in FY12. However launch
activity was muted in 1Q due to approval delays.
3. Rent business- Gross/net leasing for the quarter was 1msf/0.73msf. This is
line with the full year guidance at 3msf. Leasing rates seem be improving at
the margin. Average rentals in 1Q stood at Rs47psf vs. Rs43psf pm in 4Q.
4. Execution – 1Q deliveries were 1.9 msf. For full year company is guiding
to >12msf of deliveries with a number of projects in Gurgaon, Kolkata and
Chennai nearing completion. Area under construction decreased to 52msf
from 54msf as of 4Q due to delivery of 2msf implying no new areas were
brought under construction during the quarter.
1Q results: Headline PAT below but core numbers in-line
DLF reported 1Q earnings. Headline numbers (PAT at Rs3.6B, -13% Y/Y) were
10% below estimates but core numbers (EBITDA level) were in line with
expectations. The miss in earnings was primarily due to lower other income, elevated
other business losses and higher interest costs. Rental income for the quarter stood at
Rs3.7B.
Debt for the quarter remained largely stable. Operational cash flow for the quarter
stood at Rs2.6B (after interest/ tax); however the same was used up in rather heavy
rental capex (Rs3.3B) implying no surplus.
Key financial highlights include –
1) Revenue of Rs 24.5B increased 21% y/y marginally below expectations;
2) EBITDA margin (core basis) at 47% was better than expected but below the 1Q11
level of 51%. Note that the impact of cost escalations (done in 4Q) was not taken into
account in 1Q11;
3) Losses in non core business (insurance and hotels) stay elevated at Rs479MM in
1Q (4Q11 level Rs 118MM);
4) Other income during the Q declined to Rs 574MM (-57% Y/Y) and was one of the
main reasons for the disappointment.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
DLF’s inability to reduce debt has been the main overhang on its share
price. While FY11 cash flows were masked by various PE buyouts, 1Q
FY12 was not an encouraging start to the year, as most of the operating
surplus during the Q got used up in retail mall/office construction. Going
ahead, for gearing to reduce materially, large-ticket asset monetizations
will need to go through. While news flow of late points to improved
visibility on this account (Rs15-20B), markets may remain skeptical until
these developments finally materialize.
Key highlights of the analyst call: 1) 1Q FY12 saw DLF generating
positive operating cash flow (after interest/ tax) but this was used up in
rather heavy rental capex (Rs3.3B) implying no surplus. 2) Management
is hopeful about seeing some traction on monetization of assets over the
next 2-3 quarters. Various news reports (e.g. Economic Times) have
indicated assets worth Rs15-20B (Noida/Pune IT Parks, insurance
business and land in Gurgaon) for which the company is in talks with
prospective buyers. 3) As of now the company will look to continue with
its strategy to do largely plotted sales to mitigate construction cost risks
and accelerate cash flows and do selective build out in rental business. It
will not be looking to sacrifice margins in the current environment.
1Q FY12 results recap: Reported profit of Rs3.6B came in lower than
expectations, primarily on account of lower other income and higherthan-
expected non-core losses. On a core RE EBITDA basis, results were
in-line, thanks to a healthy 47% reported EBITDA margin. This was on
account of a higher mix of plotted to mid-income project mix.
Estimate changes: We reduce our FY12/13 earnings assumptions by
~17% primarily to factor in higher interest cost and lower other income.
Our pre-sales assumption of Rs61B implies a 8% decrease from last
year’s level and is lower than the guidance level (Rs65-70B).
Correspondingly our normalized cash earnings based Mar-12 price target
of the company is revised down to Rs255.
Asset sales target of Rs70B over the next 2-3 years;
management guiding to an increased traction here
DLF achieved asset sales of Rs1.7B during 1Q. Incremental company guidance on
non-core asset sales is optimistic, in our view, with specific large ticket transactions
at advanced stages. Overall the company is looking to do asset sales of Rs70B over
the next 2-3 years.
Recent news flow on the sale of IT parks in Pune/Noida to PE players (Rs13B),
Gurgaon plot sale (Rs4B), and stake sale in the insurance business (Rs4.5B) points to
increased traction in asset sales.
While we factor in asset sales of Rs15B in FY12, the conclusion of these large-ticket
transactions can provide a boost to debt reduction plan. The company is guiding to
increased visibility on non-core assets sales over the next 2-3 quarters, which should
aid in debt reduction.
Table 1: DLF - Recent news flow on asset sales points to increased traction
Asset Recent news flow
Noida IT Park - In discussions with Blackstone to sell its IT Park in Pune (in JV with
Ackruti) for Rs9B.
Pune IT Park - In discussions to sell its stake in Noida land for Rs4B. 3C is co partner
in the project
Aman Resorts - Settlement of minority investors paves way for a strategic sale in the
business
Gurgaon Plots 2msf of group housing project for Rs4B
Insurance business - Looking to sell its stake to HCL group for Rs4.5B
Source: News reports (Economic Times)
Key operating highlights-
1. Development business - Sales bookings for the quarter stood at 2.2 msf
(~Rs 11B). This is against 1.9msf done in 1QFY11 and 3.8msf in 4Q FY11.
Sales during the quarter included Gurgaon plotted launch (1.1 msf), Indore
plotted project (0.2msf) and mid income projects (0.9msf). Full year
company target is around Rs 65-70B in value terms (JPMe- Rs61B).
2. Focus on plotted launches – Incremental launches are largely going to be
plotted launches to accelerate cash flows, counter the inflationary trends and
mitigate execution risks. Response to initial launches under the segment (in
Gurgaon sec 91/92) has been encouraging. In terms of launch plans, co. has
been looking to launch 10-12msf of projects in FY12. However launch
activity was muted in 1Q due to approval delays.
3. Rent business- Gross/net leasing for the quarter was 1msf/0.73msf. This is
line with the full year guidance at 3msf. Leasing rates seem be improving at
the margin. Average rentals in 1Q stood at Rs47psf vs. Rs43psf pm in 4Q.
4. Execution – 1Q deliveries were 1.9 msf. For full year company is guiding
to >12msf of deliveries with a number of projects in Gurgaon, Kolkata and
Chennai nearing completion. Area under construction decreased to 52msf
from 54msf as of 4Q due to delivery of 2msf implying no new areas were
brought under construction during the quarter.
1Q results: Headline PAT below but core numbers in-line
DLF reported 1Q earnings. Headline numbers (PAT at Rs3.6B, -13% Y/Y) were
10% below estimates but core numbers (EBITDA level) were in line with
expectations. The miss in earnings was primarily due to lower other income, elevated
other business losses and higher interest costs. Rental income for the quarter stood at
Rs3.7B.
Debt for the quarter remained largely stable. Operational cash flow for the quarter
stood at Rs2.6B (after interest/ tax); however the same was used up in rather heavy
rental capex (Rs3.3B) implying no surplus.
Key financial highlights include –
1) Revenue of Rs 24.5B increased 21% y/y marginally below expectations;
2) EBITDA margin (core basis) at 47% was better than expected but below the 1Q11
level of 51%. Note that the impact of cost escalations (done in 4Q) was not taken into
account in 1Q11;
3) Losses in non core business (insurance and hotels) stay elevated at Rs479MM in
1Q (4Q11 level Rs 118MM);
4) Other income during the Q declined to Rs 574MM (-57% Y/Y) and was one of the
main reasons for the disappointment.
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