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DLF Limited — Muted 1Q results; Maintain Buy
Country Overview
Improved operational performance in 1Q
DLF reported a muted 1Q results with revenue in line with expectation at
Rs24.5bn and improvement in EBIDTA margin to 45%. But net earnings
disappointed by 10% at Rs3.6bn due to higher than expected interest cost and
lower other income. We maintain our Buy rating and PO at Rs275 offering 25%
upside potential as we believe the stock correction is over done and risk reward is
favorable from current levels. The key trigger will be improved leverage through
sale of non core assets and stronger operational cash flows.
Downside risk to our office leasing estimate
DLF continues to be cautious on overall demand scenario. We have currently
maintained our office leasing volume at 4mn sq ft for FY12 given buoyant
demand across India. But see 10% downside risk if sales/leasing does not pick
up in 2Q also. The office leasing has gotten impacted due to litigation in the
Gurgaon office projects (~2mn sq ft) where DLF has stopped further leasing.
DLF’s cash flow constrains may also impact its leasing volume post FY13 as it is
not launching any new office project for construction to conserve cash.
Improving leverage to drive stock
DLF continues to be focused on non core asset sales and expects positive
development in 2Q which should lead to reduction in debt. We expect DLF will
manage to reduce debt by 10% (Rs22-25bn) in FY12 through sale of assets – IT
office in Pune/ Noida and Aman Resorts. But operational cash surplus is unlikely
to be significant (Rs5-8bn and mostly back ended in 2HFY12 as launches pick
pace) given continued capex and land investment.
Earnings estimate cut by 10% for FY12/13
We have cut our earnings estimate for FY12 by 10% due to factor in 1) higher
interest cost and 2) lower other income.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
DLF Limited — Muted 1Q results; Maintain Buy
Country Overview
Improved operational performance in 1Q
DLF reported a muted 1Q results with revenue in line with expectation at
Rs24.5bn and improvement in EBIDTA margin to 45%. But net earnings
disappointed by 10% at Rs3.6bn due to higher than expected interest cost and
lower other income. We maintain our Buy rating and PO at Rs275 offering 25%
upside potential as we believe the stock correction is over done and risk reward is
favorable from current levels. The key trigger will be improved leverage through
sale of non core assets and stronger operational cash flows.
Downside risk to our office leasing estimate
DLF continues to be cautious on overall demand scenario. We have currently
maintained our office leasing volume at 4mn sq ft for FY12 given buoyant
demand across India. But see 10% downside risk if sales/leasing does not pick
up in 2Q also. The office leasing has gotten impacted due to litigation in the
Gurgaon office projects (~2mn sq ft) where DLF has stopped further leasing.
DLF’s cash flow constrains may also impact its leasing volume post FY13 as it is
not launching any new office project for construction to conserve cash.
Improving leverage to drive stock
DLF continues to be focused on non core asset sales and expects positive
development in 2Q which should lead to reduction in debt. We expect DLF will
manage to reduce debt by 10% (Rs22-25bn) in FY12 through sale of assets – IT
office in Pune/ Noida and Aman Resorts. But operational cash surplus is unlikely
to be significant (Rs5-8bn and mostly back ended in 2HFY12 as launches pick
pace) given continued capex and land investment.
Earnings estimate cut by 10% for FY12/13
We have cut our earnings estimate for FY12 by 10% due to factor in 1) higher
interest cost and 2) lower other income.
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