DLF Limited - JPM

According to our discussions with property agents/brokers, DLF has launched
and significantly pre-sold its initial inventory of the high-end golf course
residential project “The Camellias”. We believe around 32 units have been
sold with ticket prices of US$3MM+ and a base selling price of Rs25K/psf.
This follows the earlier successful launch of Crest (@ Rs15K/psf). We note
that as per the annual plan laid out by the company, the target was to sell 1.7
msf p.a over the next 3-4 years. These two launches, we estimate, have taken
the sales volume to approx 1.1 msf with selling prices higher than our
assumptions. Phase 5, in our view, will increasingly become a key driver of
the company’s operating cash flow from F15 onwards.

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 Camellias launched – good response – Camellias is the third phase of
DLF’s golf course residential project (following Aralias and Magnolias).
Over the entire project, there are just 429 apartments (to be sold over
four years) with a starting size of 7,400 sqft, going up to 16,000 sqft.
 Pricing is aggressive … but it’s a marquee project. The company’s
launch price of Rs25K/psf (there are discounts on timely payment and
early possession totaling Rs4K) is aggressive in the context of
neighbouring projects which are ready and selling at similar or only
slightly higher rates. However, we believe the marquee nature of the
location, limited unit availability and spread out payment schedule
(construction-linked) explain the take up in an otherwise slow market.
 1Q results preview – Given that launches done from 2HF13 onwards in
the Gurgaon/New Gurgaon area will take at least six quarters to move to
revenue recognition (ex golf course), we expect weak earnings
performance in 1Q (revenue Rs19.7B/EBITDA Rs7.5B/PAT Rs0.1B) as
the roll down of old projects continues and new project accounting is
deferred under the new rules (25% completion). Project deliveries are
likely to remain elevated through the year (13msf+). We expect net debt
reduction of Rs15B on the back of the recent capital raise. Overall, we
expect net cash flow to be negative by Rs3B, similar to last quarter,
given continued rent/land capex.