Sell DLF; target of Rs 209: KRChoksey

“DLF posted its Q3FY12 results below our estimates with a topline of Rs 2396 Crs, degrowth of 7% q-o-q and 7.6% y-o-y. Operating margins improved 210bps sequentially and 45bps y-o-y on the back of lower construction cost. Net margins declined 366bps sequentially and 716bps y-o-y on the back of higher depreciation and interest expenses.”

“The company booked 3.3 msf gross sales in Q3FY12 v/s 1.28 msf in Q2FY12 & 2.48 msf in Q3FY11 & DLF made a 0.42 msf of gross leasing in Q3FY12 v/s 0.66 msf in Q2 FY12 & 1.62 msf in Q3 FY11 [Net leasing of 0.22 msf in Q3 FY12 vs 0.21 msf in Q2 FY12 & 1.97 msf in Q3 FY11]. Total annuity income of Rs 440 Crs including Rs 390 Crs rental income. DLF closed 2 IT Park deals during Q3 worth 785 crs. DLF had 53 msf of projects area under construction at the end of the quarter. Total developable potential at 359 msf. DLF had 44.9 msf of projects area under construction at the end of Q3FY12 v/s 52 msf in the previous quarter. Total developable potential at 349 msf. As on 31st Dec 2011, the gross debt for DLF stood at Rs. 24086 Crs v/s Rs. 24,690 Crs in Q2FY12 and 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. 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 non-core 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. However, we believe all the positives are factored in and recommend a SELL on the stock considering our NAV valuation of Rs 209 /share,” says KRChoksey research report.  

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