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Press reports suggest that monetisation of about Rs30bn from the sale of DLF's assets are under
way, which should help the company partially reduce its net debt by year-end. While 2Q12
remains muted in terms of launches and sales, we expect the company to achieve momentum in
2H12 (festival season). Buy.
Asset sale likely to start deleveraging
Press reports (The Economic Times, ET) suggest that non-core asset monetisation worth Rs30bn
is visible in the next six months, which would partially reduce DLF’s high net debt (Rs227bn as of
30 June 2011). This is in line with the company’s guidance of reducing debt to the extent of Rs60-
70bn in next two to three years. As per various press reports, the assets up for sale include: 1)
the sale of the Pune IT SEZ (in which DLF has about a 70% stake) for Rs8-9bn (ET, 13
September 2011); 2) the sale of the Noida IT Park (in which DLF has about a 70% stake) for Rs4-
5bn (ET, 21 September 2011); 3) the sale of a 28-acre property in Gurgaon for Rs4bn (ET, 19
August 2011); and 4) the sale of Aman Resorts for Rs18bn (ET, 20 September 2011). Further,
there are press reports (ET, 13 September 2011) that DLF is looking to sell its Lower Parel
property in Central Mumbai at Rs25bn-40bn.
Sales seemed subdued in 2QFY12, but we expect momentum in 2H (festival season)
Given the slowdown in demand and, hence, volumes, DLF to date has not been able to
launch/sell plot developments as it expected in Lucknow and Panchkula this quarter. We believe
this could slow the earnings run rate in 2Q. That said, we now expect the proposed launches and
sales to happen during the festival season (Oct-Dec 2011), enabling DLF to improve operational
cash flows during 2HFY12.
CCI’s potential fine and tax on IT SEZs remain overhangs
The Competition Commission of India’s (CCI) recently fined DLF Rs6.3bn for “abuse of dominant
position”, which DLF has challenged and remains confident of a favourable resolution. During
1QFY12, DLF received an income tax demand notice of Rs5.5bn (in addition to Rs11.6bn in
FY11) related to the sale of IT SEZs to DAL (DLF Assets Ltd), which is a concern. However, DLF
is confident of a favourable resolution on this too.
Maintain Buy owing to DLF’s focus on deleveraging
Given global headwinds, we reduce our asset monetisation assumption from Rs45bn to Rs30bn,
resulting in a new SOTP-based target price of Rs260/share (from Rs270), which is based on our
FY13F DCF valuation of Rs214/share (post a 10% discount to GAV) for its land bank and
Rs46/share for completed leased assets (60% share). We maintain our Buy rating.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Press reports suggest that monetisation of about Rs30bn from the sale of DLF's assets are under
way, which should help the company partially reduce its net debt by year-end. While 2Q12
remains muted in terms of launches and sales, we expect the company to achieve momentum in
2H12 (festival season). Buy.
Asset sale likely to start deleveraging
Press reports (The Economic Times, ET) suggest that non-core asset monetisation worth Rs30bn
is visible in the next six months, which would partially reduce DLF’s high net debt (Rs227bn as of
30 June 2011). This is in line with the company’s guidance of reducing debt to the extent of Rs60-
70bn in next two to three years. As per various press reports, the assets up for sale include: 1)
the sale of the Pune IT SEZ (in which DLF has about a 70% stake) for Rs8-9bn (ET, 13
September 2011); 2) the sale of the Noida IT Park (in which DLF has about a 70% stake) for Rs4-
5bn (ET, 21 September 2011); 3) the sale of a 28-acre property in Gurgaon for Rs4bn (ET, 19
August 2011); and 4) the sale of Aman Resorts for Rs18bn (ET, 20 September 2011). Further,
there are press reports (ET, 13 September 2011) that DLF is looking to sell its Lower Parel
property in Central Mumbai at Rs25bn-40bn.
Sales seemed subdued in 2QFY12, but we expect momentum in 2H (festival season)
Given the slowdown in demand and, hence, volumes, DLF to date has not been able to
launch/sell plot developments as it expected in Lucknow and Panchkula this quarter. We believe
this could slow the earnings run rate in 2Q. That said, we now expect the proposed launches and
sales to happen during the festival season (Oct-Dec 2011), enabling DLF to improve operational
cash flows during 2HFY12.
CCI’s potential fine and tax on IT SEZs remain overhangs
The Competition Commission of India’s (CCI) recently fined DLF Rs6.3bn for “abuse of dominant
position”, which DLF has challenged and remains confident of a favourable resolution. During
1QFY12, DLF received an income tax demand notice of Rs5.5bn (in addition to Rs11.6bn in
FY11) related to the sale of IT SEZs to DAL (DLF Assets Ltd), which is a concern. However, DLF
is confident of a favourable resolution on this too.
Maintain Buy owing to DLF’s focus on deleveraging
Given global headwinds, we reduce our asset monetisation assumption from Rs45bn to Rs30bn,
resulting in a new SOTP-based target price of Rs260/share (from Rs270), which is based on our
FY13F DCF valuation of Rs214/share (post a 10% discount to GAV) for its land bank and
Rs46/share for completed leased assets (60% share). We maintain our Buy rating.
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