No respite DLF’s 3QFY15 results :: HDFC Securities

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No respite DLF’s 3QFY15 results were muted along expected lines with revenues of Rs 19.6bn (our est. was Rs 20.2bn) declining 5% YoY and 3% QoQ. EBITDA of Rs 8.0bn was in line with strong EBITDA margins of 41% (est. 39%) owing to higher revenue bookings from premium projects. At PAT level, APAT of Rs 1.3bn was higher than our estimate of Rs 1.2bn owing to lower tax rate of 6% owing to a deferred tax adjustment. However, sales bookings continued to disappoint with 3QFY15 bookings of Rs 6.5bn (after a sequential improvement in 2QFY15 bookings to Rs 9.2bn vs. Rs 3bn of bookings in 1QFY15 and 4QFY14). Majority of sales continue to be contributed by Phase V Gurgaon projects (Rs 5.8bn) across Crest and Camelias. However, we expect bookings to improve in 4QFY15E owing to two new launches in Gurgaon (Crest Phase II and Privana Independent Floors). DLF’s stock performance has been volatile post the SEBI ruling barring the company and its promoters from the Indian capital markets. We currently value DLF at Rs 146/share on FY16E NAV (CMP Rs 157) and believe that investors should stay away until clarity emerges on the SEBI ruling. We maintain our SELL rating and remain weary of any further negative news flow. Any incremental impact from the fresh CCI probe is not factored into our estimates.  Debt rises QoQ : DLF’s net debt rose Rs 4bn QoQ to Rs 203bn owing to capex of Rs 1.9bn and higher interest outgo of Rs 8.4bn during the quarter. With few large projects launches in CY15, DLF will need to launch a number of projects in CY16E to keep debt levels under control. For this, DLF will require to launch many projects outside the sluggish NCR market.  Introduction of REITs/CMBS possible triggers : Although there is uncertainty on whether DLF and its subsidiaries will be able to list a REIT, we believe that DLF will continue to explore further options of converting existing lease rental discounting (LRD) loans to CMBS to achieve capital efficiency. Further, any clarity emerging on taxation issues with respect to REITs may enable DLF to achieve cap rate compression.

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