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Buy
DLF (DLF.BO)
Return Potential: 40% Equity Research
Buy for value, benefit from growth; upgrade to Buy
Source of opportunity
We upgrade DLF to Buy from Neutral. The stock has corrected 32% in 2011 (vs
Sensex -20%) and at 1.1X 12-m fwd P/B is trading close to its historical trough
multiple. DLF appears attractive on asset valuation as we estimate the current
stock price is factoring in land value and rental assets of 157 mn sqft
compared with its total land bank of 360 mn sqft, which supports our basecase assumptions even in the event of continued macro uncertainty. In our
view, the stock is factoring in a 20% selling price discount to our assumptions,
which are at least 10% lower than market prices in most locations. We also
think debt may reduce from 3QFY12E, driven by asset sales.
Catalyst
We see three catalysts for DLF over the next few quarters: (1) initial batch
of asset sales of about Rs20 bn in the short term leading to debt reduction.
Key assets that DLF is looking to monetize include IT parks, power and
hotel assets. We estimate debt reduction of Rs50 bn could enhance DLF’s
FY13E EPS by 15%, (2) operational stability in commercial as well as
residential real estate, and (3) peaking of the interest rate cycle in FY12E,
according to our GS Global ECS Research team.
Valuation
Following the recent correction, we think valuation appears attractive as
DLF is currently trading at: (1) a 34% discount to our FY12E-based RNAV of
Rs282; (2) 1.1X FY2013E P/B, close to its historical trough of 1.0X (3) 12-m
forward P/E of 14.6X vs its 3-year average of 17.7X. We fine-tune our
FY12E-FY14E EPS by up to -2% to factor in higher overheads. We raise our
12-month target price—set at a 10% discount to our FY12E-based NAV—to
Rs254 from Rs250 to factor in higher prices of launched properties.
Key risks
(1) Sustained interest rate hikes, (2) delays in announcements of asset
sales, (3) execution delays, and (4) sustained input/labour cost inflation.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Coverage View: Attractive
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Buy
DLF (DLF.BO)
Return Potential: 40% Equity Research
Buy for value, benefit from growth; upgrade to Buy
Source of opportunity
We upgrade DLF to Buy from Neutral. The stock has corrected 32% in 2011 (vs
Sensex -20%) and at 1.1X 12-m fwd P/B is trading close to its historical trough
multiple. DLF appears attractive on asset valuation as we estimate the current
stock price is factoring in land value and rental assets of 157 mn sqft
compared with its total land bank of 360 mn sqft, which supports our basecase assumptions even in the event of continued macro uncertainty. In our
view, the stock is factoring in a 20% selling price discount to our assumptions,
which are at least 10% lower than market prices in most locations. We also
think debt may reduce from 3QFY12E, driven by asset sales.
Catalyst
We see three catalysts for DLF over the next few quarters: (1) initial batch
of asset sales of about Rs20 bn in the short term leading to debt reduction.
Key assets that DLF is looking to monetize include IT parks, power and
hotel assets. We estimate debt reduction of Rs50 bn could enhance DLF’s
FY13E EPS by 15%, (2) operational stability in commercial as well as
residential real estate, and (3) peaking of the interest rate cycle in FY12E,
according to our GS Global ECS Research team.
Valuation
Following the recent correction, we think valuation appears attractive as
DLF is currently trading at: (1) a 34% discount to our FY12E-based RNAV of
Rs282; (2) 1.1X FY2013E P/B, close to its historical trough of 1.0X (3) 12-m
forward P/E of 14.6X vs its 3-year average of 17.7X. We fine-tune our
FY12E-FY14E EPS by up to -2% to factor in higher overheads. We raise our
12-month target price—set at a 10% discount to our FY12E-based NAV—to
Rs254 from Rs250 to factor in higher prices of launched properties.
Key risks
(1) Sustained interest rate hikes, (2) delays in announcements of asset
sales, (3) execution delays, and (4) sustained input/labour cost inflation.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Coverage View: Attractive
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