Sunday, January 1, 2012

>DLF sells Pune IT SEZ: Its impact and analysis

Based on DLF’s 67% stake in the IT SEZ, the sale will provide a pre-tax cash inflow of INR 5.4bn. The IT SEZ in Hinjewadi is spread over an area of 5m sq. ft. with 1.8m sq. ft. currently operational with tenants such as Cognizant, TCS, and Barclays, among others. Although the sale price of INR 8.1bn achieved for the asset was below our expectation of INR 12.8bn, we view this development as positive, as it is the largest asset sale achieved by DLF so far after it decided to sell its non-core assets to reduce its debt.

Earlier this month, DLF sold its 100% stake in DLF Hotels & Hospitality, expected to give company a net cash inflow of INR 4.3bn. In addition to this, the company also received the first tranche of c.INR 2.0bn for its ~71% stake sale in 1.3mn sq ft IT Park in Noida. Based on our estimates, from the sale of a total of five assets (over the past two quarters), DLF will receive total pre-tax cash inflow of c.INR 20bn that will help net debt reduction by around 6-7% from its current c.INR 255bn level by 4QFY12. With the company close to appointing a property consultant for the sale of Lower Parel land in Mumbai and also targeting to achieve the sale of Aman Resort by 4QFY12, monetization of either of these assets would be a key positive catalyst for the stock, in our view. We remain confident in management’s ability to sell non-core assets and improve the company’s balance sheet. We maintain our Buy recommendation on the stock, as it is currently trading at a ~29% discount to our NAV of INR 270 per share.