KRChoksey recommends reduce rating on DLF

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KRChoksey recommends reduce rating on DLF

KRChoksey is bearish on DLF and has recommended reduce rating on the stock in its November 17, 2011 research report.

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KRChoksey is bearish on DLF and has recommended reduce rating on the stock in its November 17, 2011 research report.

"DLF posted its Q2FY12 results above our estimates with a topline of Rs 2532 Crs, a growth of 4% q-o-q and 7% y-o-y. EBITDA margins improved significantly by 711 bps on a y-o-y basis on the back of decrease in operating expenses, on a sequential basis margins improved by 90 bps. Net margins remained flat sequentially, however declined by 295 bps y-o-y on the back of surge in interest cost and higher effective tax rate."

"As on Sept 2011, the gross debt for DLF stood at Rs. 25449 Crs v/s Rs. 24,061 Crs in Q1FY12, a 5.8% jump sequentially owing to non achievement of the company's divestment target. The company maintains its target of disinvesting Rs. 6,000 - Rs. 7,000 crore of non-core assets in the next 2 - 3 years to repay significant amount of debt. In Q2FY12 it monetized non-core assets to the tune of Rs. 245 Crs v/s 165 Crs in Q1FY12. Management continues to maintain its target of bringing down the debt to Rs 19500 -19000 Crs by the end of current fiscal. We believe, if the company manages to achieve its target of sale on noncore assets to repayment of debt the debt/equity ratio is expected to reduce to 0.8x and 0.7x for FY12E and FY13E respectively."

"We expect DLF to focus on plotted developments and low cost - high margin projects going forward. We estimate the company to book sales of 12 msf in the FY12 and ~ 2.5 - 3 msf of leasing activities. We believe slowdown in interest rate cycle will be positive for the company considering the substantial debt on the books, however, with the overall softness in real estate sector, fresh sales, new launches and execution of projects will be a challenge for DLF. Factoring the current quarter performance we revise our recommendation from SELL to REDUCE considering the stock is trading close to our revised target price of Rs. 207/share, based on NAV valuation methodology," says KRChoksey research report.   

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