Buy DLF; target of Rs 296: Nirmal Bang

Nirmal Bang is bullish on DLF and has recommended buy rating on the stock with a target of Rs 296 in its February 18, 2013 research report.
 
“DLF’s management indicated that the launch of its high-value Phase V residential projects in Gurgaon is likely within the next two-three months, beginning with Crest. The Phase V project comprises two sub-projects i.e. Crest (2.5mn sq ft) and Camelias (Magnolias Phase II, 3.5mn sq ft) to be executed in three phases. Indicative prices for Crest and Camelias are likely to be Rs13,000/sq ft and above Rs20,000/sq ft, respectively, with likely ticket size of each apartment being Rs30mn and Rs150mn, respectively. We have factored in total 1.5mn sq ft of sales in FY14E and FY15E each from these projects combined. DLF has 2,000 acres of land in new Gurgaon which has potential 55mn sq ft of saleable area. So far the company has monetised 14mn sq ft out of 15mn sq ft launched, having a total value of Rs100bn. In CY12, the company managed to sell 4mn sq ft, and the run-rate is likely to be maintained in the medium term, in our view. The project that will be launched immediately in New Gurgaon is Ultima, with a potential saleable area of 2.1mn sq ft and is likely to be priced at Rs10,000/sq ft.”
 
“The management has given guidance of 8.0mn sq ft of steady state pre-sales over the next three years. The likely split of 8.0mn sq ft is 1.5mn sq ft of Gurgaon Phase V project (worth EBITDA Rs25bn), 2.5mn sq ft of New Gurgaon project (worth EBITDA Rs12.5bn) and 4.0mn sq ft of rest of India projects (worth EBITDA Rs17.5bn). We have factored in Rs70bn of total pre-sales in FY14E. The management has given guidance of EBITDA at Rs82.5bn, free cash flow at Rs30bn and net debt at Rs100bn in the next three years. The EBITDA target will have Rs27.5bn of income from rental business. Free cash flow of Rs30.0bn is after accounting for capex (Rs15.0bn), finance costs (Rs10.0bn), other expenses (Rs20.0bn) and dividend (Rs7.5bn). We expect DLF to turn free cash flow positive in FY14E, after four years, given the renewed focus on launch of high-value projects and non- core asset sales so far in FY13.”
 
“DLF has outperformed BSE Sensex by 14 percent over the past two months on expectation of improvement in cash flow/reduction in net debt, which was quite visible in 3QFY13. We expect further improvement in cash flow led by the launch of high-value new projects and non-core asset sales. We have retained our Buy rating on DLF with a target price of Rs296, which is at a 15 percent discount to our one-year forward NAV,” says Nirmal Bang research report.

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