DLF has entered into a binding agreement to sell Aman resorts for
US$300MM (source: BSE). Proceeds of the divestment are expected to be
used largely for debt reduction. This comes on the back of big-ticket
Mumbai asset sale in October. The company, in our view, is now closer to
achieving its net debt target of Rs185B by Mar-13 (JPME Rs200B). This
debt reduction, coupled with high-value NCR launches, has the
potential to significantly turn around cash flow for the company.
However, given past misses we expect the market to remain skeptical until
the company’s core operating cash flows turn decisively positive.
Aman deal price implies no profit, but retained Delhi property
embeds a lot of real estate value. We note that in the transaction, Aman
Lodhi Road Property (~ 7 acres) is not part of the asset sale. This
property, in the heart of South Delhi, embeds significant real estate value
which could add a big valuation delta over time. However, this may take
time to be unlocked.
Guidance of bringing down net debt to Rs185B by Mar-13. Debt
reduction should save Rs6B pa in interest costs starting in FY14;
rate reductions could add more. DLF in its 3Q results had guided to a
net debt reduction to Rs185B by Mar-13 driven by Mumbai, Aman, and
wind power sale transactions. With Mumbai and Aman now concluded/
underway (Rs43B in total), wind power (Rs7-8B) is what remains. Given
negative momentum in core operating cash flows (Rs3-4B per Q),
however, we build in debt reduction to Rs200B only.
Launch traction building up after a sedate 1H. DLF has an
approximately 8msf launch pipeline in 2H13. Of this, it has launched its
New Gurgaon project (3 msf) at ~ Rs 6,000 psf, which is at an
approximately 20% premium to our assumption. The major launch,
however, is expected in 4Q – its Phase V (prime Gurgaon) project which
could contribute Rs100B in turnover over the next 4-5 years. Any
adverse outcome on pending CCI litigation is the main risk we see
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