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Our channel check confirms the sale of DLF’s stake in Pune office property is nearing completion.
This coupled with its other asset sale program, which also seems to be on track, could partially
reduce the overhang of its high debt. That said, no significant launches till date in the current
quarter is disappointing.
Our industry channel check suggests there is a visibility of Rs 15bn of asset monetisation for
DLF in the next three months which would partially help in reducing its high net debt (Rs 227
as on 30th June 2011), the biggest overhang on the stock.
Channel check confirms DLF closing deal for its Pune office property
Our channel checks confirm to the sale of Pune office property (DLF owns 67%) which
comprises of 4 buildings (1.9msf of rent yielding assets) at a deal value of ~Rs8-8.5bn
(valued at 10% cap rate) to a real estate arm of a global private equity fund. Our channel
checks further inform that the monetary transaction is however subject to approval by the
government panel on 19th September 2011.
The likelihood of the sale was even highlighted in the press (The Hindu dated 12th September
2011) which reported that DLF is expected to sell its stake in IT/ITeS Special Economic Zone
(SEZ) in Pune to Blackstone.
Blackstone is likely to buy the entire 100% stake in the 11.83 hectare SEZ with DLF selling its
67% stake while Ackruti City Ltd would be selling the remaining stake.
Law Ministry approval was comforting as the deal nears closure
As per press (The Financial Express dated 13th September 2011), the Department of
Revenue had earlier opposed the proposal stating that the transaction would amount to sale
of land, which is not permitted under the SEZ Act and rules.
However with the matter being referred to the Law Ministry the proposal was approved on
grounds of the sale being a change in equity structure which cannot be treated as transfer or
sale of land.
Deal closure now hinges on approval from Government panel
According to The Financial Express, the proposal of the sale of shares to foreign investor will
now be placed before the Board of Approval (BoA), headed by Commerce Secretary - Rahul
Khullar. The BoA comprises senior officials from the Department of Revenue, Law Ministry
and other concerned departments.
With the decision being left to the BoA we believe the proposal would be approved as it has
already been approved by the Law Ministry.
Other asset sale program (for debt reduction) on right track…
Press (The Economic Times) reports that DLF has sold 28 acre land parcel in Gurgaon to
developer M3M for Rs 4.4bn (of which Rs 1.5bn is already received and balance expected by
end of September 2011). Our channel check indicates that the deal is not closed yet but
should be done in next 10 days.
Sale of Noida IT Park for Rs 4bn which we expect to be concluded within next 3 months.
Sale of Aman Resorts (for US$400m) by FY12 is equally significant, in our view.
The company is even looking forward to the sale of land in lower parel in central Mumbai at a
value of Rs25-40bn, however we believe this sale is in very initial stages as DLF has recently
appointed bankers for the execution of the deal.
...however the launch/ sales plans remain weak
Given the slowdown in demand and hence volumes, DLF till date has not been able to
launch/sell plotted development expected in Lucknow and Panchkula in the current quarter
(2QFY12). This we believe could slowdown the run-rate of earnings (as plotted development
has reasonably large poportion of revenue recognition and hence earnings recognition).
However, if the launch/ sale happens within the quarter, then DLF operational and financial
performance for the quarter would be strong even in weak markets.
Headwinds swell as CCI imposes fine on abuse of dominance
Competition Commission of India (CCI) has imposed a fine on DLF of about Rs 6bn over
“abuse of dominant position” in relation to two high-end housing projects in Gurgaon. Delayed
delivery of projects and changes in the building structure were among the charges leveled
against DLF. We highlight that DLF would be challenging the CCI order at Competition
Appellate Tribunal and remains confident of winning the case.
Maintain buy on DLF’s focus on de-leveraging strategy
We maintain our Buy rating with SOTP-based target price of Rs270/share which is based on
an end-FY13F DCF value of Rs224/share (post a 10% discount to GAV) for its land bank and
Rs46/share for completed leased assets (60% share).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Our channel check confirms the sale of DLF’s stake in Pune office property is nearing completion.
This coupled with its other asset sale program, which also seems to be on track, could partially
reduce the overhang of its high debt. That said, no significant launches till date in the current
quarter is disappointing.
Our industry channel check suggests there is a visibility of Rs 15bn of asset monetisation for
DLF in the next three months which would partially help in reducing its high net debt (Rs 227
as on 30th June 2011), the biggest overhang on the stock.
Channel check confirms DLF closing deal for its Pune office property
Our channel checks confirm to the sale of Pune office property (DLF owns 67%) which
comprises of 4 buildings (1.9msf of rent yielding assets) at a deal value of ~Rs8-8.5bn
(valued at 10% cap rate) to a real estate arm of a global private equity fund. Our channel
checks further inform that the monetary transaction is however subject to approval by the
government panel on 19th September 2011.
The likelihood of the sale was even highlighted in the press (The Hindu dated 12th September
2011) which reported that DLF is expected to sell its stake in IT/ITeS Special Economic Zone
(SEZ) in Pune to Blackstone.
Blackstone is likely to buy the entire 100% stake in the 11.83 hectare SEZ with DLF selling its
67% stake while Ackruti City Ltd would be selling the remaining stake.
Law Ministry approval was comforting as the deal nears closure
As per press (The Financial Express dated 13th September 2011), the Department of
Revenue had earlier opposed the proposal stating that the transaction would amount to sale
of land, which is not permitted under the SEZ Act and rules.
However with the matter being referred to the Law Ministry the proposal was approved on
grounds of the sale being a change in equity structure which cannot be treated as transfer or
sale of land.
Deal closure now hinges on approval from Government panel
According to The Financial Express, the proposal of the sale of shares to foreign investor will
now be placed before the Board of Approval (BoA), headed by Commerce Secretary - Rahul
Khullar. The BoA comprises senior officials from the Department of Revenue, Law Ministry
and other concerned departments.
With the decision being left to the BoA we believe the proposal would be approved as it has
already been approved by the Law Ministry.
Other asset sale program (for debt reduction) on right track…
Press (The Economic Times) reports that DLF has sold 28 acre land parcel in Gurgaon to
developer M3M for Rs 4.4bn (of which Rs 1.5bn is already received and balance expected by
end of September 2011). Our channel check indicates that the deal is not closed yet but
should be done in next 10 days.
Sale of Noida IT Park for Rs 4bn which we expect to be concluded within next 3 months.
Sale of Aman Resorts (for US$400m) by FY12 is equally significant, in our view.
The company is even looking forward to the sale of land in lower parel in central Mumbai at a
value of Rs25-40bn, however we believe this sale is in very initial stages as DLF has recently
appointed bankers for the execution of the deal.
...however the launch/ sales plans remain weak
Given the slowdown in demand and hence volumes, DLF till date has not been able to
launch/sell plotted development expected in Lucknow and Panchkula in the current quarter
(2QFY12). This we believe could slowdown the run-rate of earnings (as plotted development
has reasonably large poportion of revenue recognition and hence earnings recognition).
However, if the launch/ sale happens within the quarter, then DLF operational and financial
performance for the quarter would be strong even in weak markets.
Headwinds swell as CCI imposes fine on abuse of dominance
Competition Commission of India (CCI) has imposed a fine on DLF of about Rs 6bn over
“abuse of dominant position” in relation to two high-end housing projects in Gurgaon. Delayed
delivery of projects and changes in the building structure were among the charges leveled
against DLF. We highlight that DLF would be challenging the CCI order at Competition
Appellate Tribunal and remains confident of winning the case.
Maintain buy on DLF’s focus on de-leveraging strategy
We maintain our Buy rating with SOTP-based target price of Rs270/share which is based on
an end-FY13F DCF value of Rs224/share (post a 10% discount to GAV) for its land bank and
Rs46/share for completed leased assets (60% share).
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