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DLF (DLFU)
Property
Easy gains; steep climb ahead. DLF’s stock is up 29% since its recent low and has
outperformed the BSE Sensex by 10% over the past 3M led by asset sales and a higher
probability of reducing debt. However, core performance remains weak though the
focus remains on cash flows with DLF drawing plans to launch 4-4.5 mn sq. ft of plots
and to sell FSI. Key potential triggers include further assets sales (Aman Resorts) and
visibility of launches as per DLF's calendar. We downgrade the stock to ADD noting
18% upside and maintain our target price at Rs 270/share based on March-2013 NAV.
Reiterates focus on cash flows with stated optimism about 2HFY12
DLF’s launch plans for 2HFY12 of 6.5 – 7.5 mn sq. ft includes 4.5 – 5 mn sq. ft of plotted
development, primarily in areas where it has significant ongoing development (Gurgaon) and
where only plotted developments will sell (Indore, Panchkula in Chandigarh and Lucknow) since
people like investing in land in a high inflationary scenario. The company has sold 2.9 mn sq. ft of
FSI for Rs6.2 bn in 2QFY12 and will likely sell more in areas which are not of strategic importance.
Though DLF did not launch anything in 2QFY12 due to adverse market sentiments, the company is
expecting inflation to reduce in 2H of the fiscal year.
Net debt rises and non-core asset sales will drive debt repayment
DLF’s net debt has risen Rs9.7 bn (including investments) due to (1) deferment of major
disinvestments to 3QFY12, (2) mismatch in rolling over debt (the company has taken long-term
debt of Rs9 bn on Sept 30, 2011 which got included in the financials but paid off an older debt in
October), (3) forex impact of Rs1.4 bn on debt in Amanresorts books (total debt of US$250 mn)
and (4) cash requirements to pay dividend and advance tax.
DLF is likely to conclude the sale of the Noida IT Park (entered into definitive agreements) and Pune
SEZ (all approvals in place and delay is due to documentation) in 3QFY12 and divest Aman Resorts
(evaluating and negotiating bids) in the current fiscal year and this deal is likely to bring in Rs30 bn.
The next phase of disinvestments is expected to be worth Rs40 bn though specifics have not been
disclosed.
Downgrade to ADD with target price of Rs270/share
After hitting a low of Rs176 on August 26, 2011, the stock has run up by 29% and we
consequently downgrade DLF to ADD while we maintain our target price at Rs270/share. We
continue to like DLF due to (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 and (4) adverse environment
causing delay in selling “non-core” assets.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
DLF (DLFU)
Property
Easy gains; steep climb ahead. DLF’s stock is up 29% since its recent low and has
outperformed the BSE Sensex by 10% over the past 3M led by asset sales and a higher
probability of reducing debt. However, core performance remains weak though the
focus remains on cash flows with DLF drawing plans to launch 4-4.5 mn sq. ft of plots
and to sell FSI. Key potential triggers include further assets sales (Aman Resorts) and
visibility of launches as per DLF's calendar. We downgrade the stock to ADD noting
18% upside and maintain our target price at Rs 270/share based on March-2013 NAV.
Reiterates focus on cash flows with stated optimism about 2HFY12
DLF’s launch plans for 2HFY12 of 6.5 – 7.5 mn sq. ft includes 4.5 – 5 mn sq. ft of plotted
development, primarily in areas where it has significant ongoing development (Gurgaon) and
where only plotted developments will sell (Indore, Panchkula in Chandigarh and Lucknow) since
people like investing in land in a high inflationary scenario. The company has sold 2.9 mn sq. ft of
FSI for Rs6.2 bn in 2QFY12 and will likely sell more in areas which are not of strategic importance.
Though DLF did not launch anything in 2QFY12 due to adverse market sentiments, the company is
expecting inflation to reduce in 2H of the fiscal year.
Net debt rises and non-core asset sales will drive debt repayment
DLF’s net debt has risen Rs9.7 bn (including investments) due to (1) deferment of major
disinvestments to 3QFY12, (2) mismatch in rolling over debt (the company has taken long-term
debt of Rs9 bn on Sept 30, 2011 which got included in the financials but paid off an older debt in
October), (3) forex impact of Rs1.4 bn on debt in Amanresorts books (total debt of US$250 mn)
and (4) cash requirements to pay dividend and advance tax.
DLF is likely to conclude the sale of the Noida IT Park (entered into definitive agreements) and Pune
SEZ (all approvals in place and delay is due to documentation) in 3QFY12 and divest Aman Resorts
(evaluating and negotiating bids) in the current fiscal year and this deal is likely to bring in Rs30 bn.
The next phase of disinvestments is expected to be worth Rs40 bn though specifics have not been
disclosed.
Downgrade to ADD with target price of Rs270/share
After hitting a low of Rs176 on August 26, 2011, the stock has run up by 29% and we
consequently downgrade DLF to ADD while we maintain our target price at Rs270/share. We
continue to like DLF due to (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 and (4) adverse environment
causing delay in selling “non-core” assets.
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