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Divestment gaining momentum: Since de-leveraging is DLF's biggest trigger,
the success of its plan to sell asset worth INR60b-70b over the next 2-3 years will
be crucial to mitigate liquidity concerns. We sensed a higher conviction on a few
large deals getting concluded over the next 3-6 months, given that DLF is in an
advanced stage of documentation for divestment of four assets worth ~INR30b.
The absence of major payment commitments towards preference shares (~INR53b
outflow in FY11) would offer DLF the opportunity to use the cash from divestment
to cut debt by 10-15% in FY12.
Plotted development to improve operational support: DLF's plotted sales
strategy offers fast cash generation, few approval hassles, a shield against the
impact of inflation and is likely to mitigate concerns over delayed launches.
Meaningful success in its initial plotted projects in Gurgaon substantiates the
effectiveness of the strategy in the current market situation.
Best geared to leverage uptick in commercial vertical: DLF is set to benefit
from recovery in the commercial vertical with its ~25msf of leased assets and
12.5msf of assets under construction. We expect leasing to gain momentum and
declining vacancy rates to boost rental values in prime micro-markets going forward.
We estimate DLF's FY12 annuity income (including retail, utilities and power) at
INR16.6b and at INR19b in FY13 against INR15.5b in FY11.
Key triggers: These include (a) de-leveraging by 10-15% in FY12, (b) successful
launch of ~12msf of projects, (c) peaking of interest rate could benefit DLF most
among its rate-sensitive peers.
Risk: (a) a delay in concluding its divestment deals and (b) extreme plans to
divest its prime assets could cap DLF's upside when the market recovers. A
shrinking land bank (12-15% reduction in the land bank over the past 12 months)
could erode the long-term advantage of having a large land bank.
Valuation and view: The stock trades at 32% discount to NAV and 18.5x FY13E
EPS of INR11.1 and 1.2x FY13E BV. Maintain Buy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Divestment gaining momentum: Since de-leveraging is DLF's biggest trigger,
the success of its plan to sell asset worth INR60b-70b over the next 2-3 years will
be crucial to mitigate liquidity concerns. We sensed a higher conviction on a few
large deals getting concluded over the next 3-6 months, given that DLF is in an
advanced stage of documentation for divestment of four assets worth ~INR30b.
The absence of major payment commitments towards preference shares (~INR53b
outflow in FY11) would offer DLF the opportunity to use the cash from divestment
to cut debt by 10-15% in FY12.
Plotted development to improve operational support: DLF's plotted sales
strategy offers fast cash generation, few approval hassles, a shield against the
impact of inflation and is likely to mitigate concerns over delayed launches.
Meaningful success in its initial plotted projects in Gurgaon substantiates the
effectiveness of the strategy in the current market situation.
Best geared to leverage uptick in commercial vertical: DLF is set to benefit
from recovery in the commercial vertical with its ~25msf of leased assets and
12.5msf of assets under construction. We expect leasing to gain momentum and
declining vacancy rates to boost rental values in prime micro-markets going forward.
We estimate DLF's FY12 annuity income (including retail, utilities and power) at
INR16.6b and at INR19b in FY13 against INR15.5b in FY11.
Key triggers: These include (a) de-leveraging by 10-15% in FY12, (b) successful
launch of ~12msf of projects, (c) peaking of interest rate could benefit DLF most
among its rate-sensitive peers.
Risk: (a) a delay in concluding its divestment deals and (b) extreme plans to
divest its prime assets could cap DLF's upside when the market recovers. A
shrinking land bank (12-15% reduction in the land bank over the past 12 months)
could erode the long-term advantage of having a large land bank.
Valuation and view: The stock trades at 32% discount to NAV and 18.5x FY13E
EPS of INR11.1 and 1.2x FY13E BV. Maintain Buy.
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