Hold DLF; target of Rs 220: Emkay

Emkay Global Financial Services has recommended hold rating on DLF with a target of Rs 220 in its August 7, 2012 research report.

“DLF reported topline of Rs 21.9bn, 10% below our estimate. EBITDA stood at Rs 10.7bn, 4% above estimates. EBITDA margin at 48.5% was much higher than expectations as company reported lower construction cost under POCM accounting due to increase in saleable area of one of its large projects. PAT at Rs 2.9bn was much higher than expectations predominantly due to higher EBITDA. On operations front, company sold 1.34msf for Rs 6bn and net leased 0.29msf in the quarter. Company maintains its target of sales booking of Rs 60-65bn in FY13 which we believe will be difficult considering no launches till date in FY13.”

“In Q1FY13, company had a deficit of Rs 4.5bn considering capex and interest cost outflow. Reduction in debt by Rs 50bn would save interest cost outflow of Rs 1.8bn in the quarter. Either lower capex or improvement in core business will fill this gap. And for the same company will have to sell atleast Rs 50.bn of residential space every year which will generate net cash inflow of Rs 12bn meeting the balance deficit of Rs 10.8bn. To achieve the same in the current economic environment would be very tough if not unachievable.”

“In FY11, DLF’s Gross Debt (excl. Quasi Equity) stood at Rs 214.2bn which increased by Rs 11.5bn to Rs 225.7bn in Q1FY13. Over the same period, the company divested assets worth Rs 21.4bn which states that the core business is not generating enough cash to meet its capital servicing and capex obligations. In these 5 quarters company generated Cash from Operations to the tune of Rs 31.6bn at the same time company had capital servicing costs of Rs 42.4bn. Hence, the divestment cash inflow is predominantly going towards capital servicing. Company spent Rs 3.5bn as capex in the quarter and maintains it to be the run-rate going forward. Maintain hold rating and TP of Rs 220. Await significant improvement in core business performance or divestment of Aman Resorts for any further re-rating,” says Emkay Global Financial Services research report.

Public holding more than 90% in Indian cos

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