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DLF Limited
Taking right steps in difficult
times; reinstate with Buy
Buy for business turnaround; PO of Rs245
We reinstate with a Buy rating and a PO of Rs245 based on 15% discount to NAV
of Rs288. At our PO, the stock will trade on a P/B multiple of 1.6x which is at a
25% discount to its 3 year average PB multiple of 2.1 (close to one st dev lower
multiple of 1.5x). We foresee strong performance from FY13 as we expect its core
market Gurgaon to see a volume rebound with a minimal correction of 10%. The
stock’s performance in the medium term will depend on its ability to conclude noncore
assets sales (which is gaining pace) and a corresponding cut in debt.
Gurgaon market is our favorite; DLF will be first to rebound
DLF derives 40% of its NAV from Gurgaon which we expect will outperform all
other markets in FY13. We are not only expecting prices to hold up in DLF’s prime
Gurgaon land but also expect the demand to remain robust when DLF launches
its luxury project in 4Q given limited supply. We believe DLF is set to gain the
most from the strong volume rebound in Gurgaon market in FY13.
Debt a concern, but enough assets to back it
The gross debt of around Rs230bn remains a concern and DLF needs to cut it by
25-30% in medium term to get its balance sheet in shape. We expect DLF will at
best manage to reduce debt by 10% if the asset sale goes through as planned
(Rs15bn of asset sales in advanced stages). But given the strong asset base of
leased commercial assets and some of the most prime land parcels in India, we
believe DLF is unlikely to get into trouble similar to that faced by Unitech in 2008.
Operational performance to remain weak in FY12
We expect that DLF’s strategy to sell plotted developments should help it
outperform others on volume in FY12. However, we expect DLF to achieve 25%
less than its guidance of Rs60bn of pre-sales in FY12, leading to flat earnings.
Risk –
Delay in sale of non core assets – If the sale of non core assets is delayed it
could lead to correction in stock prices as the overhang of high leverage will likely
cloud the expected better performance of physical market. Also then DLF will
have to look at equity dilution to reduce leverage.
Delay in recovery of Gurgaon residential – Our thesis on DLF primarily
factors recovery in residential demand in Gurgaon. If it is delayed the stock may
not perform.
Global recession – If the global economy goes down into recession the stock
could see downside given office demand as well as the residential demand will be
impacted.
For complete sector report and details on other companies click link below
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
DLF Limited
Taking right steps in difficult
times; reinstate with Buy
Buy for business turnaround; PO of Rs245
We reinstate with a Buy rating and a PO of Rs245 based on 15% discount to NAV
of Rs288. At our PO, the stock will trade on a P/B multiple of 1.6x which is at a
25% discount to its 3 year average PB multiple of 2.1 (close to one st dev lower
multiple of 1.5x). We foresee strong performance from FY13 as we expect its core
market Gurgaon to see a volume rebound with a minimal correction of 10%. The
stock’s performance in the medium term will depend on its ability to conclude noncore
assets sales (which is gaining pace) and a corresponding cut in debt.
Gurgaon market is our favorite; DLF will be first to rebound
DLF derives 40% of its NAV from Gurgaon which we expect will outperform all
other markets in FY13. We are not only expecting prices to hold up in DLF’s prime
Gurgaon land but also expect the demand to remain robust when DLF launches
its luxury project in 4Q given limited supply. We believe DLF is set to gain the
most from the strong volume rebound in Gurgaon market in FY13.
Debt a concern, but enough assets to back it
The gross debt of around Rs230bn remains a concern and DLF needs to cut it by
25-30% in medium term to get its balance sheet in shape. We expect DLF will at
best manage to reduce debt by 10% if the asset sale goes through as planned
(Rs15bn of asset sales in advanced stages). But given the strong asset base of
leased commercial assets and some of the most prime land parcels in India, we
believe DLF is unlikely to get into trouble similar to that faced by Unitech in 2008.
Operational performance to remain weak in FY12
We expect that DLF’s strategy to sell plotted developments should help it
outperform others on volume in FY12. However, we expect DLF to achieve 25%
less than its guidance of Rs60bn of pre-sales in FY12, leading to flat earnings.
Risk –
Delay in sale of non core assets – If the sale of non core assets is delayed it
could lead to correction in stock prices as the overhang of high leverage will likely
cloud the expected better performance of physical market. Also then DLF will
have to look at equity dilution to reduce leverage.
Delay in recovery of Gurgaon residential – Our thesis on DLF primarily
factors recovery in residential demand in Gurgaon. If it is delayed the stock may
not perform.
Global recession – If the global economy goes down into recession the stock
could see downside given office demand as well as the residential demand will be
impacted.
For complete sector report and details on other companies click link below
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