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Removed from Asia Pacific Buy List
DLF (DLF.BO)
Equity Research
Shifting focus to operational momentum; downgrade to Neutral
What happened
We downgrade DLF from Buy to Neutral as we believe the stock has
started to price in asset sales while we see limited upside to our
operational estimates. DLF is up 36% since we added it to our Buy List on
August 25, 2011 vs. the Sensex up 7%. Over the past 12 months the stock
is down 38% vs. the Sensex down 18%. We believe the stock is now
pricing in progress on asset sales and stabilization of interest rates. Going
forward, we expect stock performance to be driven by improvement in
quarterly sales velocity and pick-up in commercial leasing volumes, but we
have limited visibility on the same currently.
Current view
We believe the stock currently offers a balanced risk-reward. Key downside
risks include: (1) lower-than-expected residential sale volumes, (2)
continued increase in interest rates, (3) delayed closure of asset sales, and
(4) lower-than-expected execution on slower approvals. In the past, DLF
has faced approval issues in Bangalore, Mumbai and Goa. Key upside
risks include higher-than-estimated prices/volumes in Gurgaon, but we
believe a favorable combination of both is unlikely.
Other key parameters that will drive the direction of DLF NAV estimates
and hence stock performance include (1) pricing of asset sales, especially
the Aman resorts (near term); key assets that DLF is trying to monetize are
summarized in Exhibit 2, (2) interest rates (near term), (3) launch of
Mumbai property (medium term), and (4) turning of commercial real estate
cycle. For longer term catalysts, refer to our note “Commercial real estate
cycle bottoming as supply declines” dated September 14,2011.
We believe DLF looks fully valued at a 15% discount to NAV vs the Indian
real estate sector average of 33%. The stock trades at 1.5X 12-m fwd P/B vs
two year average of 1.8X, and 18.5X 12-mo fwd P/E vs two year average of
18.4X. Our 12-month target price of Rs254 is set at a 10% discount to our
March-2012E based NAV of Rs282.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Attractive
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Removed from Asia Pacific Buy List
DLF (DLF.BO)
Equity Research
Shifting focus to operational momentum; downgrade to Neutral
What happened
We downgrade DLF from Buy to Neutral as we believe the stock has
started to price in asset sales while we see limited upside to our
operational estimates. DLF is up 36% since we added it to our Buy List on
August 25, 2011 vs. the Sensex up 7%. Over the past 12 months the stock
is down 38% vs. the Sensex down 18%. We believe the stock is now
pricing in progress on asset sales and stabilization of interest rates. Going
forward, we expect stock performance to be driven by improvement in
quarterly sales velocity and pick-up in commercial leasing volumes, but we
have limited visibility on the same currently.
Current view
We believe the stock currently offers a balanced risk-reward. Key downside
risks include: (1) lower-than-expected residential sale volumes, (2)
continued increase in interest rates, (3) delayed closure of asset sales, and
(4) lower-than-expected execution on slower approvals. In the past, DLF
has faced approval issues in Bangalore, Mumbai and Goa. Key upside
risks include higher-than-estimated prices/volumes in Gurgaon, but we
believe a favorable combination of both is unlikely.
Other key parameters that will drive the direction of DLF NAV estimates
and hence stock performance include (1) pricing of asset sales, especially
the Aman resorts (near term); key assets that DLF is trying to monetize are
summarized in Exhibit 2, (2) interest rates (near term), (3) launch of
Mumbai property (medium term), and (4) turning of commercial real estate
cycle. For longer term catalysts, refer to our note “Commercial real estate
cycle bottoming as supply declines” dated September 14,2011.
We believe DLF looks fully valued at a 15% discount to NAV vs the Indian
real estate sector average of 33%. The stock trades at 1.5X 12-m fwd P/B vs
two year average of 1.8X, and 18.5X 12-mo fwd P/E vs two year average of
18.4X. Our 12-month target price of Rs254 is set at a 10% discount to our
March-2012E based NAV of Rs282.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Attractive
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