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Feb 22, 2013, 12.44 PM IST | Source: Moneycontrol.com

Sell DLF, says Ventura Securities

Ventura Securities is bearish on DLF and has recommended sell rating on the stock in its February 21, 2013 research report. According to the research firm, the company expects to raise Rs 5500 crore through capital action and other divestment with Rs 3000 crore free cash flow from operations after capex on rentco and land outflow.

Ventura Securities is bearish on DLF and has recommended sell rating on the stock in its February 21, 2013 research report. According to the research firm, the company expects to raise Rs 5500 crore through capital action and other divestment with Rs 3000 crore free cash flow from operations after capex on rentco and land outflow.

"During Q3FY13, DLF net sales declined by 35.6% (YoY) and 35.8% (QoQ) to Rs1310 crore in Q3FY13. Net profit increased by 10.2% (YoY) and 105.6% (QoQ) to Rs 280 crore. Cost adjustment of Rs 560 crore was partly offset by PBT of Rs 840 crore on account of sale of NTC mill. PBT of Rs 200 crore was also lower due to new accounting policy and will be recognized in the next few quarters. Area sold declined on YoY basis from 3.3msf in Q3FY12 to 2.3msf in Q3FY13 but improved on QoQ basis from 1.6msf in Q2FY13. In 9MFY13, net sales and profit declined by 20.9% and 27.6% on YoY basis to Rs 5550 crore and Rs 720 crore, respectively. Area sold fell by 23.7% on a YoY basis to 5.2msf.

Net debt level declined by Rs 1870 crore during Q3FY13 to Rs 21350 crore in December 2012. The company expects its net debt level to decline further to Rs 19000 crore, primarily on account of sale of Aman Resorts and Wind Mill by the end of FY13. DLF expects to bring down its net debt level to Rs 10000 crore in the next 2-3 years with improved operating cash flows and equity infusion. DLF expects to raise Rs 5500 crore through capital action and other divestment with Rs 3000 crore free cash flow from operations after capex on rentco and land outflow. In the longer term, DLF expects to keep its debt level at 6x its rental income while keeping its development business debt free.

High-value projects like Wazriabad and Chanakyapuri's monetisation is at least two-three years away because of an ongoing litigation. Further, DLF is adding significant value in the ecosystem of its rental assets to boost rentals by providing enhanced connectivity, safety & security initiatives and sustainability effort, thereby halving the debt over the next three years with the help of two equity issuances and operational cash flow.

DLF's overall prospects improved significantly led by pick-up in execution, reduction in debt level and expected improvement in operating cash flows. However, Q3FY13 was a disappointing quarter for DLF Ltd backed by the lower revenue recognition (due to new accounting policy) and cost adjustment of Rs 560 crore. For FY13, DLF expects deliveries between 10-12 msf spread across Gurgaon, Kolkata, Chennai, and Kochi. However, the tight liquidity conditions, discouraging capital markets and higher borrowing costs remain a risk to the company’s guidance. Further, leasing volumes continue to remain under pressure due to global uncertainties. Currently, the stock is trading at 25.8x and 18.2x its FY14E and FY15E consensus earnings estimates and we recommend a SELL on the stock," says Ventura Securities research report.

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