Accumulate DLF; target of Rs 234: PLilladher

Prabhudas Lilladher`s research report on DLF

“DLF, Post an extremely dismal Q3FY13, revenues witnessed an increase of 70% QoQ to Rs 22.2bn; however, well below expectations. As per the company, the new accounting guidelines, which calls for revenue recognition after 25% of the budgeted construction cost is incurred on the project, resulted in lower revenue recognition to the extent of Rs3.2bn for the quarter. Further, margins were also low at 32.6% although no cost escalations were built-in this quarter. This was again on account of the accounting guidelines, coupled with old ‘low margin’ projects coming in for recognition. The company reported a loss of Rs42m at the net level. However, adjustment for an exceptional item resulted in profit of Rs288m.”

“Sales during the quarter stood subdued at 2m sq.ft as against 2.23m sq.ft in Q3FY13. The company launched 1m sq.ft in Gurgaon and 0.36m sq.ft in Bengaluru. For FY13, launches stood at 4.27m sq.ft, while sales stood at 7.23m sq.ft as against 13.55m sq.ft in FY12. In value terms, the drop has been from Rs52.7bn in FY12 to Rs38.1bn in FY13. Despite the cash being received from the NTC mill transaction to the tune of Rs27bn, the net debt reduction during the year has only been to the extent of Rs.9.9bn as the remaining went towards purchase of land, capex and dividend payout which was to the extent of Rs17bn. The net debt at the end of FY13 stood at Rs.217bn. Going forward, the company expects to bring down net debt to Rs171bn as it expects funds from Aman sale of Rs17.55bn, wind energy sale of Rs10bn as well as Rs18.6bn which has already been raised through the mandatory equity issuance. Sale of the ‘Aman’ chain which was entered into in Q3FY13, has not yet been completed as the proceeds from the transaction are now expected by June 30, 2013. Further, the windmill transaction which was also expected to get complete by the end of the fiscal is still in the pipeline. Rs1.8bn has been received from this transaction, while Rs5.8bn is expected shortly and the remaining during the course of FY14.”

“Although the company has a clear plan towards achieving its sales targets as well as debt reduction, both these are dependent on 1) an impending court case and 2) culmination of non-core asset sale transactions. Hence, for the interim, we are reducing our rating from BUY to ‘Accumulate. and would take a re-look when atleast one of the two events pans out in the right direction. We revise our target price to Rs234,” says Prabhudas Lilladher research report.

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