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DLF (DLFU)
Property
No negative surprise is a positive. Post a few turbulent quarters of lowering sales
guidance, missing it and then announcing a cost reset, DLF had a steady quarter with
(1) EBITDA margin normalizing (up 21 percentage points qoq), (2) revenues recognition
surprising positively (up 21% yoy) and (3) focus continuing to remain on plot sales.
However, we need to see progress in sales, launches and debt reduction to justify a rerating. We will review our target price and estimates post the earnings call
EBITDA normalization is the key positive in the quarter
DLF reported revenues of Rs24.5 bn (+21% yoy, -9% qoq) versus our expectation of Rs20 bn led
by faster-than-anticipated revenue recognition on plot sales done in 2HFY11. The key positive has
been EBITDA margin normalization to 45.4% (back in line with the company’s comfort range of
45-50% and in line with our expectation of 45%) after a ‘cost reset’ led to 25% EBITDA margin in
4QFY11. EBITDA was 24% above expectation led by the revenue surprise and came in at Rs11.1
bn (+13% yoy, +67% qoq). PAT was Rs3.6 bn (-13% yoy, +4% qoq and 8% below expectations)
due to (1) lower other (largely financial) income, (2) higher depreciation and (3) higher interest
expense recognized in the income statement.
Launches and debt reduction are areas of incremental progress
DLF booked sales of 2.2 mn sq. ft in 1QFY12 (versus 3.8 mn sq. ft in 4QFY11 and 1.9 mn sq. ft in
1QFY11) – two new plotted developments (Gurgaon and Indore) contributed 1.1 mn sq. ft while
0.9 mn sq. ft was from existing inventory. DLF needs to pick up its launches to achieve its target of
10-12 m sq. ft of launches in FY2012E. Incremental rental area leased is 0.73 mn sq. ft which is in
line with its target to lease 2.5-3 mn sq. ft in FY2012E. Debt remained almost steady qoq.
Strategy and macro views remain the same – which are not necessarily given
DLF continues to focus on launching plotted developments given faster cash conversion cycle and
low inflation risk for construction costs. DLF expects macro environment to remain challenging –
(1) demand moderation due to interest rate hikes, (2) lower leasing volumes due to uncertainty on
income-tax code and (3) funding constraints due to high borrowing cost and unfriendly capital
markets.
Retain ADD with target price of Rs270/share
We like DLF as it has (1) a relatively wide geographical spread, (2) lower regulatory risk versus
Mumbai firms, (3) no share pledges and (4) a relatively balanced portfolio between residential and
commercial segments. Key risks include (1) delay in approvals, (2) further inflation-led cost impact
and (3) increasing interest rates impacting demand.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
DLF (DLFU)
Property
No negative surprise is a positive. Post a few turbulent quarters of lowering sales
guidance, missing it and then announcing a cost reset, DLF had a steady quarter with
(1) EBITDA margin normalizing (up 21 percentage points qoq), (2) revenues recognition
surprising positively (up 21% yoy) and (3) focus continuing to remain on plot sales.
However, we need to see progress in sales, launches and debt reduction to justify a rerating. We will review our target price and estimates post the earnings call
EBITDA normalization is the key positive in the quarter
DLF reported revenues of Rs24.5 bn (+21% yoy, -9% qoq) versus our expectation of Rs20 bn led
by faster-than-anticipated revenue recognition on plot sales done in 2HFY11. The key positive has
been EBITDA margin normalization to 45.4% (back in line with the company’s comfort range of
45-50% and in line with our expectation of 45%) after a ‘cost reset’ led to 25% EBITDA margin in
4QFY11. EBITDA was 24% above expectation led by the revenue surprise and came in at Rs11.1
bn (+13% yoy, +67% qoq). PAT was Rs3.6 bn (-13% yoy, +4% qoq and 8% below expectations)
due to (1) lower other (largely financial) income, (2) higher depreciation and (3) higher interest
expense recognized in the income statement.
Launches and debt reduction are areas of incremental progress
DLF booked sales of 2.2 mn sq. ft in 1QFY12 (versus 3.8 mn sq. ft in 4QFY11 and 1.9 mn sq. ft in
1QFY11) – two new plotted developments (Gurgaon and Indore) contributed 1.1 mn sq. ft while
0.9 mn sq. ft was from existing inventory. DLF needs to pick up its launches to achieve its target of
10-12 m sq. ft of launches in FY2012E. Incremental rental area leased is 0.73 mn sq. ft which is in
line with its target to lease 2.5-3 mn sq. ft in FY2012E. Debt remained almost steady qoq.
Strategy and macro views remain the same – which are not necessarily given
DLF continues to focus on launching plotted developments given faster cash conversion cycle and
low inflation risk for construction costs. DLF expects macro environment to remain challenging –
(1) demand moderation due to interest rate hikes, (2) lower leasing volumes due to uncertainty on
income-tax code and (3) funding constraints due to high borrowing cost and unfriendly capital
markets.
Retain ADD with target price of Rs270/share
We like DLF as it has (1) a relatively wide geographical spread, (2) lower regulatory risk versus
Mumbai firms, (3) no share pledges and (4) a relatively balanced portfolio between residential and
commercial segments. Key risks include (1) delay in approvals, (2) further inflation-led cost impact
and (3) increasing interest rates impacting demand.
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