DLF is seeking shareholders’ nod for sale of its wind power business,
which we believe is a pre-cursor to its eventual sale. Media reports
indicate a deal value of INR10bn. We believe the company’s focus on
asset monetization is a positive and we reiterate ‘BUY’ on the stock.
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Event: DLF has said that it is seeking shareholders’ nod to sell its wind power business.
The said business comprises power generation units with total installed capacity of
161.2 MW (150 MW at Kutch, Gujarat, and 11.2 MW at Gadag, Karnataka). The
company has PPAs with Gujarat Urja Vikas Nigam and Hubli Electricity Supply Company
to sell power. Media reports have indicated a sale value of the business at INR10bn.
Analysis: We value DLF’s wind power assets at INR7.8bn (8X EV to FY14E EBITDA of
INR911mn) against INR10bn quoted in media. The company’s board had resolved
(subject to shareholders’ approval) to sell the business on May 30 and we believe
seeking shareholders’ nod is a step forward to it.
DLF has net debt of INR227bn, with the result that the company’s interest payments
for FY12 alone total to INR30bn against operational cash flow of INR25bn. The
company had set itself a target of asset monetisation of INR30-40bn over the next six
months. It has already informed exchanges last week about a transaction closure in
which it received INR4.4bn from sale of four hotel plots across various cities, including
Kolkata. Besides the wind power business, some other key assets lined up for sale are
Aman Resorts and NTC Mills Land (Lower Parel, Mumbai)
Our view: DLF has been weighed down by weak cash flows, high debt and tardy asset
monetization. However, news flow on asset monetization has picked up as had the
launches/sales in Q4FY12. We believe DLF’s strategy of focusing on plots/luxury and
outsourcing execution will result in quicker project turnaround and superior cash flows.
Its focus on asset monetization also appears to be reaping dividends. At current
valuations and our NAV of INR264/share, the stock is trading at 29% discount, which is
the lower end of the trading range of the stock. Maintain ‘BUY/SP’.
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