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DLF (DLF.BO) Rs217.35
Equity Research
Meaningful progress with asset monetization; Retain Buy
News
Recent news flow indicates significant progress in asset sale momentum
for DLF. Post 1QFY12 results, DLF raised guidance for asset sales to Rs60-
70 bn over the next 2-3 years and we see clear visibility of Rs40 bn. Key
assets that it is looking to monetize include IT parks, power and hotel
assets. Media reports (including The Economic Times—Aug 19, 2011,
Business Standard—Aug 4, 2011, Financial Express—September 27, 2011)
indicate that DLF has entered into MoUs for sales of some of these assets.
Furthermore, DLF has received approval for the sale of its stake in the Pune
SEZ.
Analysis
We believe momentum in asset sales indicates, (1) management
seriousness in reducing debt, and (2) presence of buyers provided asset
pricing is correct. DLF has a large land bank of 357 mn sq. ft against current
area under development of 60 mn sq. ft. Therefore any land sales will likely
be NAV-accretive since their development is back-ended. In our model we
assume price increases of 5%, while we discount back cashflows using
WACC of 14%. We believe DLF needs to reduce its debt by around 20% for
its balance sheet to become robust. Currently, DLF is pursuing asset sales
for the same but we await more aggression in operational momentum as
and when the macro environment becomes more favorable.
Implications
Our positive view on DLF is based on reasonable stock valuations (12-m
fwd P/B of 1.4X vs 2 year avg. of 1.8X) with various catalysts over the next
12 month period: (1) peaking of interest rates, (2) bottoming out of
commercial real estate cycle (36% of DLF's NAV accrues from commercial
real estate), and (3) operational stability. Our 12-month target price of
Rs254 is based on 10% discount to March-2012E based NAV and implies
potential upside of 16%. 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 �� ��
DLF (DLF.BO) Rs217.35
Equity Research
Meaningful progress with asset monetization; Retain Buy
News
Recent news flow indicates significant progress in asset sale momentum
for DLF. Post 1QFY12 results, DLF raised guidance for asset sales to Rs60-
70 bn over the next 2-3 years and we see clear visibility of Rs40 bn. Key
assets that it is looking to monetize include IT parks, power and hotel
assets. Media reports (including The Economic Times—Aug 19, 2011,
Business Standard—Aug 4, 2011, Financial Express—September 27, 2011)
indicate that DLF has entered into MoUs for sales of some of these assets.
Furthermore, DLF has received approval for the sale of its stake in the Pune
SEZ.
Analysis
We believe momentum in asset sales indicates, (1) management
seriousness in reducing debt, and (2) presence of buyers provided asset
pricing is correct. DLF has a large land bank of 357 mn sq. ft against current
area under development of 60 mn sq. ft. Therefore any land sales will likely
be NAV-accretive since their development is back-ended. In our model we
assume price increases of 5%, while we discount back cashflows using
WACC of 14%. We believe DLF needs to reduce its debt by around 20% for
its balance sheet to become robust. Currently, DLF is pursuing asset sales
for the same but we await more aggression in operational momentum as
and when the macro environment becomes more favorable.
Implications
Our positive view on DLF is based on reasonable stock valuations (12-m
fwd P/B of 1.4X vs 2 year avg. of 1.8X) with various catalysts over the next
12 month period: (1) peaking of interest rates, (2) bottoming out of
commercial real estate cycle (36% of DLF's NAV accrues from commercial
real estate), and (3) operational stability. Our 12-month target price of
Rs254 is based on 10% discount to March-2012E based NAV and implies
potential upside of 16%. 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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