DLF (DLFU IN, INR 214, Buy)
Our annual report analysis of DLF reveals FY12 was a stressed year for DLF with its operating cash (ex-land sales) at INR15.3bn insufficient to service interest payments of INR30bn. DLF has since stepped up its asset monetization drive to cut debt and ease the interest burden. On the other hand, the company has stepped up launches which will strengthen cash flows. Further, revenues now stand significantly derisked with the devco contributing 63% (of revenues) as against 85% in FY09 and the rentco (along with service and maintenance income) now accounting for 25% of revenues as against 8% in FY09. The stock will continue to be driven by asset sales and expected launch of Magnolias – Phase II. We maintain ‘BUY/SP’ with NAV/TP of INR263.
��
Debt levels stay high, operating cash flow sparse to service interest
DLF’s net debt increased to ~INR227bn in FY12 as against ~INR214bn in FY11 despite the asset monetization of INR17.74bn. The company’s operating cash flow (estimated at INR15.3bn, ex–land sales) remained insufficient to service interest and dividends (INR36bn) and capex (estimated at INR8.7bn), leading to higher net debt.
Focus on asset divestment to accelerate cash flows
Interest payment of ~INR30bn in FY12 has eaten away the operating cash flows (ex-land sales) of ~INR15.3bn. The company has plans to cut debt by ~INR50bn in FY13 through non-core sales which would then help ease the interest burden.
Outlook and valuations: Deleveraging the trigger; maintain ‘BUY’
DLF’s operating cash flows in FY12 were insufficient to service interest payments due to a weak approval cycle between Q1FY11 and Q2FY12. DLF has set out to reduce debt by ~INR50bn in FY13 driven by non-core asset sales which will ease the interest burden. Further, expected launch of Magnolias Phase II in H2FY13 will strengthen its operating cash flows. We value the company at INR263/share, implying that the stock is trading at 18% discount to its fair value. Maintain ‘BUY/Sector Performer’.
Regards,
No comments:
Post a Comment