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UBS Investment Research
DLF Limited
M uted Q1; Debt reduction the trigger
Event: Q1 beats UBSe but below consensus; operationally a muted qtr
Q1 earnings declined 13% YoY but grew 4% QoQ ahead of UBSe. Revenues &
EBITDA grew 20% YoY and 13% YoY respectively driven by higher margins of
45% (vs. UBSe of 42%) on back of plot sales. Net-debt was flat at Rs215bn, but
rising interest costs (28% YoY) impacted growth. Pre-sales slowed to 2.2msf (vs.
3.8msf in Q4), with leasing muted at 0.73msf (vs 1.4msf in Q4), but not worried.
Impact: EPS revs FY12-13E; Expect pick-up in 2H to drive growth
Expect pick-up in pre-sales from new plot launches and growing rentals (+15%
QoQ) to drive growth in 2HFY12 - DLF mgmt reiterated the same. With cost of
debt at 11.75% (vs. 11.3% in Q4) and high leverage, thrust is to aggressively
pursue non-core assets sales and cut debt – Pune, Noida IT Parks in advanced
stages likely to complete by end Q2; and more asset/land sale is being considered.
Action: Reiterate Buy; large non-core asset sales/pre-sales the trigger
We believe leverage is close to peak levels; and efforts to cut debt through noncore
asset sales (target of Rs60-70bn over 3 years), rental growth and plot sales –
are catalysts. While high debt, large interest outflow seem to be an overhang; but
with stock relatively flat vs. sensex over last 5-mths despite worsening news flow,
most negatives seem priced in – foresee attractive return potential over 12-mth
period. Key risks could be pro-longed high rate regime & severe macro slowdown.
Valuation: Close to trough; attractive at 1.5x P/BV
DLF stays our core holding and proxy to India property sector. Trading at 50%
disc to NAV (close to trough levels of 60%) we see attractive return potential.
DLF Limited
DLF is India's largest real estate company by market capitalisation. Established
as Delhi Land and Finance (DLF), it has a track record of more than 60 years in
real estate development. The major shareholders are KP Singh and family, who
own approximately 90% of the company. DLF commenced operations in Delhi,
expanded into the National Capital Region in the late 1980s, and now has a
presence in all major Indian cities. The company is a leader in office space and
has a large portfolio of residential and retail projects. It is expanding into SEZs
and hotels.
Statement of Risk
Key risks to DLF include rising rates, inflation and regulatory
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
DLF Limited
M uted Q1; Debt reduction the trigger
Event: Q1 beats UBSe but below consensus; operationally a muted qtr
Q1 earnings declined 13% YoY but grew 4% QoQ ahead of UBSe. Revenues &
EBITDA grew 20% YoY and 13% YoY respectively driven by higher margins of
45% (vs. UBSe of 42%) on back of plot sales. Net-debt was flat at Rs215bn, but
rising interest costs (28% YoY) impacted growth. Pre-sales slowed to 2.2msf (vs.
3.8msf in Q4), with leasing muted at 0.73msf (vs 1.4msf in Q4), but not worried.
Impact: EPS revs FY12-13E; Expect pick-up in 2H to drive growth
Expect pick-up in pre-sales from new plot launches and growing rentals (+15%
QoQ) to drive growth in 2HFY12 - DLF mgmt reiterated the same. With cost of
debt at 11.75% (vs. 11.3% in Q4) and high leverage, thrust is to aggressively
pursue non-core assets sales and cut debt – Pune, Noida IT Parks in advanced
stages likely to complete by end Q2; and more asset/land sale is being considered.
Action: Reiterate Buy; large non-core asset sales/pre-sales the trigger
We believe leverage is close to peak levels; and efforts to cut debt through noncore
asset sales (target of Rs60-70bn over 3 years), rental growth and plot sales –
are catalysts. While high debt, large interest outflow seem to be an overhang; but
with stock relatively flat vs. sensex over last 5-mths despite worsening news flow,
most negatives seem priced in – foresee attractive return potential over 12-mth
period. Key risks could be pro-longed high rate regime & severe macro slowdown.
Valuation: Close to trough; attractive at 1.5x P/BV
DLF stays our core holding and proxy to India property sector. Trading at 50%
disc to NAV (close to trough levels of 60%) we see attractive return potential.
DLF Limited
DLF is India's largest real estate company by market capitalisation. Established
as Delhi Land and Finance (DLF), it has a track record of more than 60 years in
real estate development. The major shareholders are KP Singh and family, who
own approximately 90% of the company. DLF commenced operations in Delhi,
expanded into the National Capital Region in the late 1980s, and now has a
presence in all major Indian cities. The company is a leader in office space and
has a large portfolio of residential and retail projects. It is expanding into SEZs
and hotels.
Statement of Risk
Key risks to DLF include rising rates, inflation and regulatory
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