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DLF Limited
Worst seems behind with 2Q
disappointment; Maintain Buy
�� Worst is behind; Maintain Buy with PO of Rs245
DLF’s reported 2Q earnings of Rs3.7bn were 10% ahead of our estimate driven
by better than expected revenue recognition from the FSI sale in Gurgaon. While
we were expecting unexciting performance in 2Q, sharply lower pre sales at
1.3mn sq ft and Rs10bn increase in net debt surprised negatively. We maintain
our Buy rating with PO of Rs245 based on 15% discount to our NAV, offering 8%
upside. We expect DLF to deliver on its deleveraging guidance for FY12 while
FY13 should see strong volume recovery for DLF (particularly in Gurgaon).
3Q to mark the turnaround in cash flows
We expect 3Q to change the rising trend in DLF’s debt (has increased
consistently since FY08) as asset sales come through. The higher than expected
increase in debt was primarily due to higher tax outgo (Rs4bn), lower sales
booking impacting operational cash flow and foreign exchange debt. We expect
stronger sales booking in 2H which will help achieve operational break even
(Rs25bn against just ~Rs16bn in 1H) while ~30bn cash inflow from non core asset
sale should help DLF achieve its guidance on debt reduction to sub Rs200bn.
Volume recovery in 2H led by plotted launches
We expect substantial improvement in booking volume in 2H (similar to FY11
when 60% of the volume was contributed in 2H) with DLF’s continued focus on
plotted launches in North India (~4-5mn sq ft). Our estimates already factor in
slower volume at 9mn sq ft (DLF targeting 10-12mn, -10% YoY) with sales value
of Rs41.5bn (-35% YoY) given lack of launches in the luxury segment.
Gurgaon market is our favorite; DLF should rebound
DLF derives 40% of its NAV from Gurgaon which we expect will outperform all
other markets in FY13. We are not only expecting prices to hold up in DLF’s prime
Gurgaon land but also expect strong volume rebound in Gurgaon market in FY13.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
DLF Limited
Worst seems behind with 2Q
disappointment; Maintain Buy
�� Worst is behind; Maintain Buy with PO of Rs245
DLF’s reported 2Q earnings of Rs3.7bn were 10% ahead of our estimate driven
by better than expected revenue recognition from the FSI sale in Gurgaon. While
we were expecting unexciting performance in 2Q, sharply lower pre sales at
1.3mn sq ft and Rs10bn increase in net debt surprised negatively. We maintain
our Buy rating with PO of Rs245 based on 15% discount to our NAV, offering 8%
upside. We expect DLF to deliver on its deleveraging guidance for FY12 while
FY13 should see strong volume recovery for DLF (particularly in Gurgaon).
3Q to mark the turnaround in cash flows
We expect 3Q to change the rising trend in DLF’s debt (has increased
consistently since FY08) as asset sales come through. The higher than expected
increase in debt was primarily due to higher tax outgo (Rs4bn), lower sales
booking impacting operational cash flow and foreign exchange debt. We expect
stronger sales booking in 2H which will help achieve operational break even
(Rs25bn against just ~Rs16bn in 1H) while ~30bn cash inflow from non core asset
sale should help DLF achieve its guidance on debt reduction to sub Rs200bn.
Volume recovery in 2H led by plotted launches
We expect substantial improvement in booking volume in 2H (similar to FY11
when 60% of the volume was contributed in 2H) with DLF’s continued focus on
plotted launches in North India (~4-5mn sq ft). Our estimates already factor in
slower volume at 9mn sq ft (DLF targeting 10-12mn, -10% YoY) with sales value
of Rs41.5bn (-35% YoY) given lack of launches in the luxury segment.
Gurgaon market is our favorite; DLF should rebound
DLF derives 40% of its NAV from Gurgaon which we expect will outperform all
other markets in FY13. We are not only expecting prices to hold up in DLF’s prime
Gurgaon land but also expect strong volume rebound in Gurgaon market in FY13.
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