Wednesday, March 28, 2012

>DLF: Gurgaon remains strong; Golf course launch key trigger

■ Strong sales booking expected in 4Q; Reiterate Buy
We expect strong rebound in sales booking for DLF in 4Q led by pick up in new launches especially in its core market of Gurgaon. DLF has launched over 5mn sq ft of new projects with sale value upwards of Rs25bn in 4Q. We see 5-10% upside risk to our FY12 booking estimate of Rs41bn (Rs16bn in 4Q). We reiterate our Buy rating with PO of Rs245 (25% upside) and believe the recent weakness (YTD, DLF up only 6% against 30% for Realty Index) offers good entry price.

■ Gurgaon remains strong; Golf course launch key trigger
DLF will be the key beneficiary of strong trends in Gurgaon given 43% of its NAV is derived from Gurgaon. DLF’s recent launches in New Gurgaon have been at significant premium to our estimate and competition. If this trend sustains for future launches, we expect 6-8% upside risk to our gross NAV estimate of Rs288/sh. The Golf course launch in 1HFY13 will be the key trigger as it will help DLF achieve 50% higher sales booking in FY13 (Rs62bn) against FY12 (Rs41bn).

■ Operational cash break even expected in FY13
We expect DLF to achieve operational cash break even in FY13 against a deficit of Rs15bn seen in FY12 as 1) its sales booking improves substantially in FY13 leading to additional cash flow of Rs2-2.5bn/qtr and 2) execution picks up pace due to measures undertaken by DLF in FY12 (outsourcing to third party, substantial jump in completions). The fall in interest rates should also help cap interest cost expense in FY13.

■ Debt reduction hinges on non core sale
Management expects to conclude three large non-core asset sales (Wind Mills, Aman Resorts and NTC Mumbai land, valued upwards of Rs50bn) in 1HFY13 which would help reduce debt significantly. This would further augment positive cash flows expected from improved sales booking in 1HFY13.

To read full report: DLF