Tuesday, November 3, 2009


Revenues and PAT in line with estimates
DLF’s revenues and PAT were in line with our expectation. Revenues increased ~6.1% Q-o-Q, to INR 17,509 mn (our expectation was INR 17,527 mn), against INR 16,499 mn in Q1FY10; Y-o-Y, revenues declined ~53%. EBITDA for the quarter increased 22.8% Q-o-Q, to INR 9,139 mn (our expectation was INR 8,764 mn), against INR 7,441 mn in Q1FY10. Tax rate for the quarter was 29.6% (our expectation of 21%) against 20.7% in Q1FY10. Net profit increased 11% Q-o-Q, to INR 4,398 mn (our expectation was INR 4,850), compared with INR 3,960 mn in Q1FY10; Y-o-Y, it declined 77% from INR 19,354 mn in Q2FY09. Net profit margins stood at 25% versus 24% and 51% in Q1FY10 and Q2FY09, respectively.

Execution on order book to ease cash flows
DLF has commenced construction on 6.56 msf in the quarter, post which it has 31.57 msf under execution against transacted space of 32.82 msf. Execution will enable DLF to receive milestone based payments from customers, enhancing their cash flows. Further, as the project nears completion, the company will be able to sell subsequent phases of the projects at prices atleast equal to the initial launches, if not at higher prices.

Testing ground for affordable homes segment
DLF plans to enter the high potential affordable housing segment with a testlaunch spanning 3–4 mn sq ft across five cities. This segment (value housing) will have a brand distinct from DLF. The management is targeting 25-30% EBITDA margin from the segment.

Outlook and valuations: Valuing land bank again; upgrade to ‘BUY’
We value DLF based on value of land and the DCF value of cash flow from launches of FY10-11 (86 mn sq ft) and from projects that are already under execution (346 mn sq ft). However, a reversal of the abundant liquidity scenario prevalent currently can impair the value ascribed to the land, impacting our NAV estimate. We also believe that the Street will be closely watching the way forward for DAL. Our NAV estimate for DLF stands at INR 428. Post the sharp correction in prices, we believe the stock appears attractively valued. Consequently, we upgrade the stock to ‘BUY from ‘HOLD’, and rate it ‘Sector Performer’ on a relative return basis.

To read the full report: DLF LIMITED