DLF - Noida IT Park sale - a drop in a ocean :: Edelweiss

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DLF has received the first tranche of stake sale proceeds from IDFC of ~INR 2bn for its 1.3 msf Noida IT Park where it holds ~71% stake. The balance monies of ~INR 2.5-3bn will likely be received over next 12-18 months subject to leasing progress in the project. This is in line with DLF’s guidance on asset monetization wherein it expected to close Noida/Pune deals in Q3FY12. However, we believe that these asset sales are factored in valuations and triggers for the stock remain closure of Aman sale (~INR 20 bn) and pick-up in new launches in H2FY12. We currently have a ‘HOLD’ recommendation with target price of INR 240/share.

Event: First tranche of Noida IT Park stake sale proceeds received has informed in a filing to stock exchanges that it has received ~INR 2bn from IDFC in the first tranche of stake sale proceeds for its IT Park in Noida out of total amount of ~INR 4.5-5 bn (as per media sources). The balance money is expected to be received in tranches over the next 12-18 months subject to progress on leasing in the IT Park. The IT Park has a total leasable area of ~1.3 msf with average rentals of ~INR 40/sf/month.

Impact: Asset monetization in line with company’s guidance

DLF had earlier indicated in its Q2FY12 analyst call that the Pune SEZ/Noida IT Park deals were nearing closure and the Noida IT Park stake sale is part of its stated target to reduce debt levels (net debt currently at ~INR 225 bn). DLF currently holds ~71% stake through a subsidiary - Galaxy Mercantile with 3C being the other JV partner.

Outlook and valuation: Stake sale factored in valuations

We believe that the stake sale of Noida IT Park and Pune SEZ are currently factored in the valuations. The key monitorable remains progress on asset monetization on Aman Resorts sale (~INR 20 bn) in H2FY12. While receipts from asset sales of ~INR10bn in H2FY12 may prop up cash inflows, we believe that DLF is having a ’treadmill effect’ as these sales may only serve to bring back net debt to Q1FY12 levels (INR215bn) hence closure of Aman deal/pick-up in new launches becomes key. We currently have a ‘HOLD’ recommendation on the stock with NAV of ~INR 240/share.