DLF - Hilton stake buyout precursor to potential asset sale :: Edelweiss

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DLF has bought Hilton Group’s 26% stake in the JV DLF Hotels & Hospitality (DLF Hotels) for ~INR1.2bn. DLF holds the balance stake in the JV which has four-five land parcels on which no active development is underway. We believe the company will look to monetize these land parcels over the medium term. However, this may only marginally pare debt and triggers for the stock remain closure of Aman Resorts sale (~INR20bn) and pick up in new launches in H2FY12. We currently have a ‘HOLD’ recommendation with target price of INR240/share.

Event: DLF buys Hilton’s 26% in JV for ~INR1.2bn

DLF has informed in a filing to stock exchanges that DLF Hotel Holdings (DHHL), a 100% subsidiary, which holds 74% stake in JV DLF Hotels, has acquired the balance 26% from Aro Participation and Splendid Property Company, affiliates of Hilton International. As per the company, the indicated outflow towards the same is ~INR1.2bn.

Impact: Buyout may pave way for asset sale over medium term

As per management, the JV has four-five land parcels in which no active development is underway currently. Hence, we believe that DLF buying out Hilton’s stake is likely to lead to a possible sale of these land parcels in the medium term as part of the company’s asset monetization plan to trim debt. Based on the value of DLF’s buyout, the net realizable value of these land parcels (post buyout money) may be ~INR3-3.5bn.

Outlook and valuations: Neutral; maintain ‘HOLD’

We believe DLF may look to monetize its share of the JV land parcels for INR3.0-3.5bn. This stake sale is over and above what has been factored by markets and hence is a positive. However, given the high net debt of INR225bn, value accretion from these sales is not material and unlikely to be a stock trigger. We reiterate that key monitorables remain progress on Aman Resorts sale (~INR20bn) and pick up in new launches in H2FY12. We currently have a‘HOLD/Sector Performer’ recommendation with NAV of ~INR240/share.