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Despite headwinds, DLF's 1Q operating performance was better than expected, but was offset by
lower other income and higher tax. We see net debt gradually declining from 2Q, led by non-core
asset sales and aided by cashflows from plotted development, as a positive near-term catalyst.
We raise our TP to Rs270
1Q operating performance better than we expected
DLF’s 1Q12 revenue growth (21% yoy) and EBITDA margin of 45.4% (39% for FY11) were
ahead of our estimates but lower other income, higher interest charge and higher tax rate (to our
forecasts) resulted in muted earnings (down 13% yoy). Despite macro headwinds, the operational
performance was in line with our expectations, with sales of 2.3m sq ft (msf), net leasing booking
of 0.73msf and delivery of 1.9msf. During 1Q, DLF received an income tax demand notice of
Rs5.5bn (in addition to Rs11.6bn in FY11) in context to the sale of IT SEZs to DAL (DLF Assets
Ltd), which is a concern. However, management remains confident of a favourable resolution.
We expect deleveraging benefits to be visible from 2Q
With unwinding of DAL largely over, net debt (Rs226.9bn) was stable qoq, as expected. We
highlight that in FY11, net cash from operations (Rs27.6bn) was largely used for debt servicing
(Rs25.9bn). 1Q12 net cash from operations was Rs8.4bn, compared with interest payment of
Rs5.8bn, leaving room for debt repayment. However this was utilised towards construction of
rent-yielding assets, which we believe would continue for 2-3 quarters. Despite this, we expect
DLF’s de-leveraging strategy (focus on plotted development and asset monetization) to bear fruit
in the near term due to higher cashflows from operations and asset monetisation from 2Q (IT
Park in Noida and IT SEZ in Pune to start with, in our view).
While management remains cautious, debt reduction via asset sale seems on track
While management remains cautious on the sector outlook due to the macro headwinds (eg,
rising interest rates, funding constraints), it feels it is well placed to deliver on its deleveraging
strategy and it expects its asset monetisation approach to start resulting in lower debt in 2Q.
The worst is over, in our view; maintain Buy
We roll forward our valuation horizon to FY13, which results in our target price falling to Rs270
(from Rs250) based on Rs224/share (post a 10% discount to GAV) for its land bank and
Rs46/share for completed leased assets (60% share). We maintain our Buy rating.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Despite headwinds, DLF's 1Q operating performance was better than expected, but was offset by
lower other income and higher tax. We see net debt gradually declining from 2Q, led by non-core
asset sales and aided by cashflows from plotted development, as a positive near-term catalyst.
We raise our TP to Rs270
1Q operating performance better than we expected
DLF’s 1Q12 revenue growth (21% yoy) and EBITDA margin of 45.4% (39% for FY11) were
ahead of our estimates but lower other income, higher interest charge and higher tax rate (to our
forecasts) resulted in muted earnings (down 13% yoy). Despite macro headwinds, the operational
performance was in line with our expectations, with sales of 2.3m sq ft (msf), net leasing booking
of 0.73msf and delivery of 1.9msf. During 1Q, DLF received an income tax demand notice of
Rs5.5bn (in addition to Rs11.6bn in FY11) in context to the sale of IT SEZs to DAL (DLF Assets
Ltd), which is a concern. However, management remains confident of a favourable resolution.
We expect deleveraging benefits to be visible from 2Q
With unwinding of DAL largely over, net debt (Rs226.9bn) was stable qoq, as expected. We
highlight that in FY11, net cash from operations (Rs27.6bn) was largely used for debt servicing
(Rs25.9bn). 1Q12 net cash from operations was Rs8.4bn, compared with interest payment of
Rs5.8bn, leaving room for debt repayment. However this was utilised towards construction of
rent-yielding assets, which we believe would continue for 2-3 quarters. Despite this, we expect
DLF’s de-leveraging strategy (focus on plotted development and asset monetization) to bear fruit
in the near term due to higher cashflows from operations and asset monetisation from 2Q (IT
Park in Noida and IT SEZ in Pune to start with, in our view).
While management remains cautious, debt reduction via asset sale seems on track
While management remains cautious on the sector outlook due to the macro headwinds (eg,
rising interest rates, funding constraints), it feels it is well placed to deliver on its deleveraging
strategy and it expects its asset monetisation approach to start resulting in lower debt in 2Q.
The worst is over, in our view; maintain Buy
We roll forward our valuation horizon to FY13, which results in our target price falling to Rs270
(from Rs250) based on Rs224/share (post a 10% discount to GAV) for its land bank and
Rs46/share for completed leased assets (60% share). We maintain our Buy rating.
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