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UBS Investment Research
DLF Limited
P ick-up in non-core asset sales, a trigger
Event: Gurgaon land sold for Rs4.4bn; sale of 2 IT Parks expected shortly
Press suggests DLF has sold 28 acres in Gurgaon for Rs4.4bn, and transaction will
be completed in a month (already received Rs1.5b). Further, stake sale of leased IT
Parks in Noida & Pune (something mgmt highlighted in its 1Q12 call) also seem to
be in advanced stages, can potentially yield cash flows of Rs13bn by Dec’11. This
aside, more land sale in key cities and other non-core assets are being evaluated.
Impact: First step towards de-leveraging, in our view
We see this large land sale in its prime Gurgaon market as mgmt’s serious efforts
to cut debt and achieve non-core asset sale target (Rs70bn over 2-3 yrs). Further,
media reports also suggest DLF is exploring options - 1) strategic sale of Aman
resorts, hotel chain and has received 5 bids of Rs18-22bn; 2) monetize its holding
in insurance business with Pramerica. We expect momentum to pick up further.
Action: Reiterate BUY; large non-core asset sales/pre-sales the trigger
We believe leverage is close to peak levels at Rs215bn and 0.9x D/E; and efforts to
cut debt through non-core asset sales, rental/plot sales growth with rate scenario
easing will be key catalysts. While recent CCI-penalty issue, large interest outflow
and risk of pre-sales bunching to 2H may stay an overhang; but concerns seems
priced in – foresee attractive return potential over 12-mth period. Key risks
however being prolonged high rates and sever macro slowdown.
Valuation: Close to recession lows at 1.3x P/BV
Trading at deep discount of 56% to NAV (close to 60% of crisis times), we see
more upside potential than downside – stays are core proxy to India property.
Trough levels at: 56% disc to NAV, 1.3x P/BV
Our price target of Rs350 is based on a 25% discount on NAV of Rs 465. Our
lower discount for DLF vs peers (30-45%) is derived from a combination of: 1)
its superior business model and good asset-geographic mix; 2) its strong rental
annuity, with growth potential; 3) its execution track record; Our NAV/share of
Rs465 includes Rs389 for the development portfolio and Rs76 for rental
yielding assets plus potential yield assets. This is higher than consensus due to –
1) lower cap rates of 9% ascribed to value its 14msf leased commercial assets
(16% of NAV), building in upside from the recovery, 2) consolidation of the
DAL-Caraf asset portfolio; 3) other developable commercial assets valued at 10-
11% cap (17% of NAV); 4) non-core asset sales of Rs25bn.. Residential,
although still dominates with 67% of NAV. Our other assumptions being - 1) no
price escalation, 2) 15% cost of capital, 3)25% tax rate; and 4) development land
reserve of 418 msf with 1-2 year execution delay.
Trading at 27% below our bear-case NAV, provides margin of safety
With NAVs likely to remain volatile during recovery cycles, we highlight the
bull-case and bear-case scenario for DLF’s NAV. Our bear case (Rs275/share)
factors in five-year development visibility (100msf, 15% of NAV), values
undeveloped land reserves (55% of NAV), and yielding group assets (29% of
NAV) and builds in high debt levels and lower cash from non-core asset sales.
The bull case (Rs600/share) builds in 10% higher prices, a faster execution
cycle; further upside on leased assets and lower debt levels. We believe this
provides an overview of downside risks and upside potential for NAVs.
DLF Limited
DLF is India's largest real estate company by market capitalisation. Established
as Delhi Land and Finance (DLF), it has a track record of more than 60 years in
real estate development. The major shareholders are KP Singh and family, who
own approximately 90% of the company. DLF commenced operations in Delhi,
expanded into the National Capital Region in the late 1980s, and now has a
presence in all major Indian cities. The company is a leader in office space and
has a large portfolio of residential and retail projects. It is expanding into SEZs
and hotels.
Statement of Risk
Key risks to DLF include rising rates, inflation and regulatory policy changes.
This apart, a severe macro economic slowdown would adversely impact growth.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
DLF Limited
P ick-up in non-core asset sales, a trigger
Event: Gurgaon land sold for Rs4.4bn; sale of 2 IT Parks expected shortly
Press suggests DLF has sold 28 acres in Gurgaon for Rs4.4bn, and transaction will
be completed in a month (already received Rs1.5b). Further, stake sale of leased IT
Parks in Noida & Pune (something mgmt highlighted in its 1Q12 call) also seem to
be in advanced stages, can potentially yield cash flows of Rs13bn by Dec’11. This
aside, more land sale in key cities and other non-core assets are being evaluated.
Impact: First step towards de-leveraging, in our view
We see this large land sale in its prime Gurgaon market as mgmt’s serious efforts
to cut debt and achieve non-core asset sale target (Rs70bn over 2-3 yrs). Further,
media reports also suggest DLF is exploring options - 1) strategic sale of Aman
resorts, hotel chain and has received 5 bids of Rs18-22bn; 2) monetize its holding
in insurance business with Pramerica. We expect momentum to pick up further.
Action: Reiterate BUY; large non-core asset sales/pre-sales the trigger
We believe leverage is close to peak levels at Rs215bn and 0.9x D/E; and efforts to
cut debt through non-core asset sales, rental/plot sales growth with rate scenario
easing will be key catalysts. While recent CCI-penalty issue, large interest outflow
and risk of pre-sales bunching to 2H may stay an overhang; but concerns seems
priced in – foresee attractive return potential over 12-mth period. Key risks
however being prolonged high rates and sever macro slowdown.
Valuation: Close to recession lows at 1.3x P/BV
Trading at deep discount of 56% to NAV (close to 60% of crisis times), we see
more upside potential than downside – stays are core proxy to India property.
Trough levels at: 56% disc to NAV, 1.3x P/BV
Our price target of Rs350 is based on a 25% discount on NAV of Rs 465. Our
lower discount for DLF vs peers (30-45%) is derived from a combination of: 1)
its superior business model and good asset-geographic mix; 2) its strong rental
annuity, with growth potential; 3) its execution track record; Our NAV/share of
Rs465 includes Rs389 for the development portfolio and Rs76 for rental
yielding assets plus potential yield assets. This is higher than consensus due to –
1) lower cap rates of 9% ascribed to value its 14msf leased commercial assets
(16% of NAV), building in upside from the recovery, 2) consolidation of the
DAL-Caraf asset portfolio; 3) other developable commercial assets valued at 10-
11% cap (17% of NAV); 4) non-core asset sales of Rs25bn.. Residential,
although still dominates with 67% of NAV. Our other assumptions being - 1) no
price escalation, 2) 15% cost of capital, 3)25% tax rate; and 4) development land
reserve of 418 msf with 1-2 year execution delay.
Trading at 27% below our bear-case NAV, provides margin of safety
With NAVs likely to remain volatile during recovery cycles, we highlight the
bull-case and bear-case scenario for DLF’s NAV. Our bear case (Rs275/share)
factors in five-year development visibility (100msf, 15% of NAV), values
undeveloped land reserves (55% of NAV), and yielding group assets (29% of
NAV) and builds in high debt levels and lower cash from non-core asset sales.
The bull case (Rs600/share) builds in 10% higher prices, a faster execution
cycle; further upside on leased assets and lower debt levels. We believe this
provides an overview of downside risks and upside potential for NAVs.
DLF Limited
DLF is India's largest real estate company by market capitalisation. Established
as Delhi Land and Finance (DLF), it has a track record of more than 60 years in
real estate development. The major shareholders are KP Singh and family, who
own approximately 90% of the company. DLF commenced operations in Delhi,
expanded into the National Capital Region in the late 1980s, and now has a
presence in all major Indian cities. The company is a leader in office space and
has a large portfolio of residential and retail projects. It is expanding into SEZs
and hotels.
Statement of Risk
Key risks to DLF include rising rates, inflation and regulatory policy changes.
This apart, a severe macro economic slowdown would adversely impact growth.
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