DLF Q1 PAT may fall 69% at Rs 90 cr: Motilal Oswal

Motilal Oswal has come out with its first quarter (April-June) earnings estimates for the real estate sector. The brokerage house expects DLF to report a fall of 69.3 percent year-on-year in net profit at Rs 90 crore.

Revenues are expected to decrease by 2 percent Q-o-Q (down 0.8 percent Y-o-Y) to Rs 2,180.8 crore, according to Motilal Oswal.

Earnings before interest, tax, depreciation and amortisation (EBITDA) are likely to rise by 5.2 percent Q-o-Q (down 28.5 percent Y-o-Y) to Rs 763.3 crore.

Motilal Oswal report on DLF

Expect weak profitability to continue: DLF's 4QFY13 revenue is seen at INR21.8 billion (flat Y-o-Y), EBITDA down 28 percent Y-o-Y to INR7.6 billion and PAT at INR0.9 billion (down 69 percent Y-o-Y). Weak profitability would likely continue for a few more quarters, with relatively higher contribution from older projects with <30 percent margin; recent launches with 45 percent+ margin would follow the new accounting practice and hence are likely to contribute to revenue from 4QFY14.

Crest launch and good sales key positives in quarter: DLF has launched 0.85msf (250 units-175 units of 3BHK and rest 4BHK) in The Crest as Phase I . As per management, it sold the whole project with average realizations of INR 17,000/sf (value of INR 14 billion+).

While Crest faced a stay order from Punjab and Haryana HC following a petition filed by the resident welfare association (RWA) of DLF Park Place - a group housing society in Phase V - over land encroachment, the Supreme Court stayed the order as per the latest update permitting DLF to carry out execution. We estimate pre-sales of INR 57 billion for DLF in FY14E.

Net debt is expected to decline by INR16 billion post QIP. Operating cash flow is expected to improve in 1QFY14E due to Crest's launch.

Current valuation prices in large part of the disappointments. Improvement in operating leverage hinges on seamless progress in planned launches, and financial leverage on the ability to carry forward pending divestments. DLF trades at 21.8x FY15E EPS, 1.1x FY15E BV and 20 percent discount to our NAV estimate of INR 284.