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DLF (DLFU)
Property
Progress on one-offs; launches put off. Recent news reports and the sale of land
parcel in Gurgaon indicate DLF’s intent and progress on asset sales in line with its target
to sell Rs60-70 bn over the next 2-3 years, which could drive a meaningful reduction in
D/E ( to 0.6X from 1X). However, with no launches scheduled for 2QFY12E, the risk to
FY2012E sales target of 10-12 mn sq. ft has increased. We retain BUY led by a 36%
potential return to our March 2013E based NAV of Rs270/share
Asset sales – one in the bag; a few more close to closure
Recent news reports raise the question of what is ‘non-core” assets: in our view, the sale of these
assets (along with the land parcel sale in Gurgaon) indicate clear intent and progress in reducing
debt. According to various media reports, DLF is in talks to sell over Rs60 bn of assets in FY2012-
13E, in line with its target of raising Rs60-70 bn over the next 2-3 years. In FY2012E, DLF already
raised Rs1.7 bn through land sales in 1QFY12 and a further Rs4.4 bn by selling a 28 acre land
parcel in Gurgaon to M3M while talks to sell its stake in Noida IT Park to IDFC for Rs4.4 bn are
already in advanced stages and likely to get concluded by end-September 2011. Other deals in the
pipeline are (1) IT SEZ in Pune (decision regarding permission for the deal to be declared by Board
of Approval), (2) Amanresorts baring Delhi Hotel (have received non-binding bids) and (3) Mumbai
NTC Mill Land sale. DLF is also in talks with Shiv Nadar controlled HCL Group to sell its stake in DLF
Pramerica though that deal could face regulatory hurdles as per press reports. Assuming
transaction margins of 10-50%, FY2012E Net-D/E can go down to 0.69X-0.64X and FY2013E Net-
D/E can go down to 0.62X-0.57X versus 0.97X at end-1QFY12. DLF has a further.6 mn sq. ft more
of operational IT Parks and IT SEZs in non-Gurgaon areas.
But no launches up to date in 2QFY12E which could raise the bar for 2HFY12E
After launching two plotted developments in 1QFY12 at Gurgaon and Indore, DLF has not
launched any projects in 2QFY12E (till date). This indicates (1) that 2QFY12E sales would likely be
weak given that of sales of 2.3 mn sq. ft in 1QFY12, only 1.1 mn sq. ft was from existing stock
and (2) the sales target of 10-12 mn sq. ft for FY2012E would be at risk and require 6-8 mn sq. ft
sales in 2HFY12E which could be a tough task in a challenging macro environment.
Retain NAV-based target of Rs270/share
We maintain our BUY rating with a target price of Rs270 /share at-par with our March 2013-NAV.
The positives that we find in DLF are that it has (1) a relatively wide geographical spread, (2) lower
regulatory risk versus most Mumbai firms and (3) a relatively balanced portfolio between
residential and commercial segments. Key risks include (1) delay in approvals, (2) further inflationled
cost impact and (3) adverse environment causing delay in selling “non-core” assets.
Better visibility on asset disposal along with progress this quarter
After raising Rs1.7 bn through assets sales in 1QFY12, media reports indicate that further
plans to sell assets worth Rs67.4 bn in FY2012-13E are gaining momentum. At end-1QFY12,
DLF had raised Rs 32.7 bn from asset disposal since inception of the plan. DLF has set a
further target of Rs 60-70 bn through asset disposal over the next 2-3 years though it seems
likely that a few of the deals could get concluded in FY2012E itself.
At end-1QFY12, DLF had gross debt (including preference capital) of Rs245 bn with a D/E of
0.97X. Assuming different transaction gross margins (10% - 50%) FY2012E Net-D/E can go
down to 0.69X-0.64X and FY2013E Net-D/E can go down to 0.62X-0.57X if the planned
transactions take place in FY2012E itself.
Status of various deals as per press reports
#1 - 28 acres land in Gurgaon to M3M for Rs4.4 bn
DLF has sold a 28 acre plot in Gurgaon to developer M3M for Rs4.4 bn. The 28 acres plot
has all approvals in place for the development of a group housing project as per persons
involved in the deal. M3M was vying along with Tata Realty and Mahindra for the land
parcel and has already paid Rs1.5 bn to DLF. The deal was reportedly sealed on Sept. 8,
2011 (primary source: Economic Times, Sept. 10, 2011).
#2 - IT SEZ in Pune to Blackstone for Rs9 bn
DLF has proposed to sell its stake (67%) in DLF Ackruti Info Parks (Pune), the JV with Ackruti
City that owns the IT SEZ in Pune, to Blackstone and the matter has been taken up by the
Board of Approval on Sept. 19, 2011 since Balckstone is a foreign investor though the
decision is yet to be made public. As per media reports, Blackstone is likely to buy the entire
100% stake (Ackruti City holds the remaining 33% stake) in the 11.83 hectare SEZ.
The department of revenue had earlier opposed the proposal arguing that the sale would
amount to the sale of land which is not permitted under the SEZ Act and rules though the
law ministry had given its approval subsequently commenting that the change in equity
structure and the consequent change in management cannot be considered as a sale of land.
The decision has since then been left to the Board of Approval.
The IT SEZ is located in Pune’s Hinjewadi area and has a total area of 5 mn sq. ft of which
1.8 mn sq. ft is currently operational. Its tenants include Cognizant Technologies, TCS,
Barclays and Novelis (primary source: Livemint, Sept. 12, 2011).
#3 - Sale of IT Park in Noida to IDFC for Rs4 bn (DLF’s stake)
DLF and 3C Company are looking to sell their stakes in Noida IT Park to Infrastructure
Development Finance Company Private Equity for about Rs5 bn (Rs4 bn for DLF’s stake) and
is expected to close the deal by end-September though both DLF and 3C have declined to
comment on the same. DLF owns about 70% stake in the IT Park and the rest is with 3C
Company (primary source: Economic Times, Sept. 21, 2011).
#4 - Amanresorts (baring Aman Hotel in Delhi – formerly known as Lodhi Delhi)
DLF has reportedly received five non binding bids of $400 - $450 mn for its luxury hotel
chain Amanresorts including a bid from LVMH Moet Hennessy Louis Vuitton SA (MC).
Amanresorts owns and manages 25 small luxury resorts worldwide (according to its website).
During its conference call with analysts on June 29, 2011 DLF had expressed interest in
selling a part of its stake in Amanresorts baring the hotel in New Delhi.
DLF had bought a controlling stake in Amanresorts in November 2007 for about $400 mn
including $150 mn of net-debt and took full ownership during FY2011 after settling
litigations with minority share holders (primary source: Bloomberg, Sept. 5, 2011).
#5 - Mumbai NTC Mill Land in Central Mumbai for Rs26 bn (KIE estimate)
DLF has decided to put 17.5 acres of NTC Mill land in Central Mumbai on sale which
bankers estimate would fetch between Rs 30-40 bn while consultants are pegging the value
at Rs25 bn. In Aug 2010, IBREL had bought 10.8 acres of NTC Mill land for Rs19.8 bn and if
we assume a discount of 20% to IBREL’s transaction rate, the value comes to Rs25.7 bn. DLF
had bought the land in 2007 for Rs7 bn and is hoping to sell it in FY2012E.
More than four foreign investment bankers including UBS, Morgan Stanley and Deutsche
Bank have already given presentations to the company and the appointment process is likely
to get completed by September end though DLF has declined to comment on the same.
The company had planned to develop the NTC Mill land into a luxury project with a saleable
area of 4.7 mn sq. ft and with a parking space of 0.25 mn sq. ft. DLF had already received
in-principle approval for higher FSI granted for parking lots to develop the project (primary
source: Economic Times, Sept. 13, 2011).
#6 - Stake sale in DLF Pramerica to Shiv Nadar controlled HCL Group for Rs4.5 bn
Shiv Nadar controlled HCL Group is in advanced talks with DLF to acquire a substantial stake
in DLF Pramerica Life Insurance Company for around Rs4.5 bn in a two-phase transaction
through a privately held company. As per persons familiar with the development, HCL
Group will first acquire 44% stake in the insurance JV by buying fresh shares of the
company and then at a later stage buy out DLF’s residual 30% stake subject to approval of
the IRDA. At present DLF owns 74% stake in the JV with Prudential Financial holding the
remaining 26%. In the last three years DLF has invested only Rs2.3 bn in the insurance
company and the low capital base has hampered its growth.
The deal is likely to face a regulatory hurdle as current guideline do not allow the original
partner in a life insurance JV to sell its stake during the first ten years of operations (primary
source: Economic Times, July 13, 2011).
Other non-Gurgaon IT Parks and IT SEZs
As per the company website and Propequity, DLF has 9.6 mn sq. ft more of operational
assets in IT Parks and IT SEZs in non-Gurgaon areas besides the projects likely to be sold off
in FY2012E. Of the list below (sorted in ascending order of completion dates), projects
which are leased by 85-100% and have good corporate tenants are more likely to be sold
off.
Launches lag expectations
In 1QFY12, DLF had launched two plotted developments – (1) plots in Sector 91/92 in
Gurgaon (1.1 mn sq. ft) and (2) plots in Indore but has not launched any projects in 2QFY12,
indicating that sales are likely to be low in 2QFY12E. The company had sold 2.3 mn sq. ft in
1QFY12, of which only 1.1 mn sq. ft was from existing stock. The company has indicated in
its 1QFY12 presentation that it will not launch any projects unless all approvals are in place,
however, DLF has to pick up pace in its launches if it has to meet its target of 10-12 mn sq.
ft of launches in FY2012E.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
DLF (DLFU)
Property
Progress on one-offs; launches put off. Recent news reports and the sale of land
parcel in Gurgaon indicate DLF’s intent and progress on asset sales in line with its target
to sell Rs60-70 bn over the next 2-3 years, which could drive a meaningful reduction in
D/E ( to 0.6X from 1X). However, with no launches scheduled for 2QFY12E, the risk to
FY2012E sales target of 10-12 mn sq. ft has increased. We retain BUY led by a 36%
potential return to our March 2013E based NAV of Rs270/share
Asset sales – one in the bag; a few more close to closure
Recent news reports raise the question of what is ‘non-core” assets: in our view, the sale of these
assets (along with the land parcel sale in Gurgaon) indicate clear intent and progress in reducing
debt. According to various media reports, DLF is in talks to sell over Rs60 bn of assets in FY2012-
13E, in line with its target of raising Rs60-70 bn over the next 2-3 years. In FY2012E, DLF already
raised Rs1.7 bn through land sales in 1QFY12 and a further Rs4.4 bn by selling a 28 acre land
parcel in Gurgaon to M3M while talks to sell its stake in Noida IT Park to IDFC for Rs4.4 bn are
already in advanced stages and likely to get concluded by end-September 2011. Other deals in the
pipeline are (1) IT SEZ in Pune (decision regarding permission for the deal to be declared by Board
of Approval), (2) Amanresorts baring Delhi Hotel (have received non-binding bids) and (3) Mumbai
NTC Mill Land sale. DLF is also in talks with Shiv Nadar controlled HCL Group to sell its stake in DLF
Pramerica though that deal could face regulatory hurdles as per press reports. Assuming
transaction margins of 10-50%, FY2012E Net-D/E can go down to 0.69X-0.64X and FY2013E Net-
D/E can go down to 0.62X-0.57X versus 0.97X at end-1QFY12. DLF has a further.6 mn sq. ft more
of operational IT Parks and IT SEZs in non-Gurgaon areas.
But no launches up to date in 2QFY12E which could raise the bar for 2HFY12E
After launching two plotted developments in 1QFY12 at Gurgaon and Indore, DLF has not
launched any projects in 2QFY12E (till date). This indicates (1) that 2QFY12E sales would likely be
weak given that of sales of 2.3 mn sq. ft in 1QFY12, only 1.1 mn sq. ft was from existing stock
and (2) the sales target of 10-12 mn sq. ft for FY2012E would be at risk and require 6-8 mn sq. ft
sales in 2HFY12E which could be a tough task in a challenging macro environment.
Retain NAV-based target of Rs270/share
We maintain our BUY rating with a target price of Rs270 /share at-par with our March 2013-NAV.
The positives that we find in DLF are that it has (1) a relatively wide geographical spread, (2) lower
regulatory risk versus most Mumbai firms and (3) a relatively balanced portfolio between
residential and commercial segments. Key risks include (1) delay in approvals, (2) further inflationled
cost impact and (3) adverse environment causing delay in selling “non-core” assets.
Better visibility on asset disposal along with progress this quarter
After raising Rs1.7 bn through assets sales in 1QFY12, media reports indicate that further
plans to sell assets worth Rs67.4 bn in FY2012-13E are gaining momentum. At end-1QFY12,
DLF had raised Rs 32.7 bn from asset disposal since inception of the plan. DLF has set a
further target of Rs 60-70 bn through asset disposal over the next 2-3 years though it seems
likely that a few of the deals could get concluded in FY2012E itself.
At end-1QFY12, DLF had gross debt (including preference capital) of Rs245 bn with a D/E of
0.97X. Assuming different transaction gross margins (10% - 50%) FY2012E Net-D/E can go
down to 0.69X-0.64X and FY2013E Net-D/E can go down to 0.62X-0.57X if the planned
transactions take place in FY2012E itself.
Status of various deals as per press reports
#1 - 28 acres land in Gurgaon to M3M for Rs4.4 bn
DLF has sold a 28 acre plot in Gurgaon to developer M3M for Rs4.4 bn. The 28 acres plot
has all approvals in place for the development of a group housing project as per persons
involved in the deal. M3M was vying along with Tata Realty and Mahindra for the land
parcel and has already paid Rs1.5 bn to DLF. The deal was reportedly sealed on Sept. 8,
2011 (primary source: Economic Times, Sept. 10, 2011).
#2 - IT SEZ in Pune to Blackstone for Rs9 bn
DLF has proposed to sell its stake (67%) in DLF Ackruti Info Parks (Pune), the JV with Ackruti
City that owns the IT SEZ in Pune, to Blackstone and the matter has been taken up by the
Board of Approval on Sept. 19, 2011 since Balckstone is a foreign investor though the
decision is yet to be made public. As per media reports, Blackstone is likely to buy the entire
100% stake (Ackruti City holds the remaining 33% stake) in the 11.83 hectare SEZ.
The department of revenue had earlier opposed the proposal arguing that the sale would
amount to the sale of land which is not permitted under the SEZ Act and rules though the
law ministry had given its approval subsequently commenting that the change in equity
structure and the consequent change in management cannot be considered as a sale of land.
The decision has since then been left to the Board of Approval.
The IT SEZ is located in Pune’s Hinjewadi area and has a total area of 5 mn sq. ft of which
1.8 mn sq. ft is currently operational. Its tenants include Cognizant Technologies, TCS,
Barclays and Novelis (primary source: Livemint, Sept. 12, 2011).
#3 - Sale of IT Park in Noida to IDFC for Rs4 bn (DLF’s stake)
DLF and 3C Company are looking to sell their stakes in Noida IT Park to Infrastructure
Development Finance Company Private Equity for about Rs5 bn (Rs4 bn for DLF’s stake) and
is expected to close the deal by end-September though both DLF and 3C have declined to
comment on the same. DLF owns about 70% stake in the IT Park and the rest is with 3C
Company (primary source: Economic Times, Sept. 21, 2011).
#4 - Amanresorts (baring Aman Hotel in Delhi – formerly known as Lodhi Delhi)
DLF has reportedly received five non binding bids of $400 - $450 mn for its luxury hotel
chain Amanresorts including a bid from LVMH Moet Hennessy Louis Vuitton SA (MC).
Amanresorts owns and manages 25 small luxury resorts worldwide (according to its website).
During its conference call with analysts on June 29, 2011 DLF had expressed interest in
selling a part of its stake in Amanresorts baring the hotel in New Delhi.
DLF had bought a controlling stake in Amanresorts in November 2007 for about $400 mn
including $150 mn of net-debt and took full ownership during FY2011 after settling
litigations with minority share holders (primary source: Bloomberg, Sept. 5, 2011).
#5 - Mumbai NTC Mill Land in Central Mumbai for Rs26 bn (KIE estimate)
DLF has decided to put 17.5 acres of NTC Mill land in Central Mumbai on sale which
bankers estimate would fetch between Rs 30-40 bn while consultants are pegging the value
at Rs25 bn. In Aug 2010, IBREL had bought 10.8 acres of NTC Mill land for Rs19.8 bn and if
we assume a discount of 20% to IBREL’s transaction rate, the value comes to Rs25.7 bn. DLF
had bought the land in 2007 for Rs7 bn and is hoping to sell it in FY2012E.
More than four foreign investment bankers including UBS, Morgan Stanley and Deutsche
Bank have already given presentations to the company and the appointment process is likely
to get completed by September end though DLF has declined to comment on the same.
The company had planned to develop the NTC Mill land into a luxury project with a saleable
area of 4.7 mn sq. ft and with a parking space of 0.25 mn sq. ft. DLF had already received
in-principle approval for higher FSI granted for parking lots to develop the project (primary
source: Economic Times, Sept. 13, 2011).
#6 - Stake sale in DLF Pramerica to Shiv Nadar controlled HCL Group for Rs4.5 bn
Shiv Nadar controlled HCL Group is in advanced talks with DLF to acquire a substantial stake
in DLF Pramerica Life Insurance Company for around Rs4.5 bn in a two-phase transaction
through a privately held company. As per persons familiar with the development, HCL
Group will first acquire 44% stake in the insurance JV by buying fresh shares of the
company and then at a later stage buy out DLF’s residual 30% stake subject to approval of
the IRDA. At present DLF owns 74% stake in the JV with Prudential Financial holding the
remaining 26%. In the last three years DLF has invested only Rs2.3 bn in the insurance
company and the low capital base has hampered its growth.
The deal is likely to face a regulatory hurdle as current guideline do not allow the original
partner in a life insurance JV to sell its stake during the first ten years of operations (primary
source: Economic Times, July 13, 2011).
Other non-Gurgaon IT Parks and IT SEZs
As per the company website and Propequity, DLF has 9.6 mn sq. ft more of operational
assets in IT Parks and IT SEZs in non-Gurgaon areas besides the projects likely to be sold off
in FY2012E. Of the list below (sorted in ascending order of completion dates), projects
which are leased by 85-100% and have good corporate tenants are more likely to be sold
off.
Launches lag expectations
In 1QFY12, DLF had launched two plotted developments – (1) plots in Sector 91/92 in
Gurgaon (1.1 mn sq. ft) and (2) plots in Indore but has not launched any projects in 2QFY12,
indicating that sales are likely to be low in 2QFY12E. The company had sold 2.3 mn sq. ft in
1QFY12, of which only 1.1 mn sq. ft was from existing stock. The company has indicated in
its 1QFY12 presentation that it will not launch any projects unless all approvals are in place,
however, DLF has to pick up pace in its launches if it has to meet its target of 10-12 mn sq.
ft of launches in FY2012E.
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