Recommendations » India

DLF 3QFY13 results update

Contributed by Nirmal Bang

DLF’s 3QFY13 EBITDA was significantly below our and Bloomberg consensus estimates on account of nil revenue booking from its recently launched project Skycourt (Rs2bn contribution expected to PBT) in adherence to new accounting norms and one-off items such as provision for loss (non-cash) on recent sale of Aman Resorts and wind power business (Rs1.5bn) and cost adjustment on account of inflationary pressure not provided for in earlier quarters (Rs5.6bn). Other income included Rs8.4bn of profits from the recent NTC land sale, in line with our estimate. Adjusting for these transactions, the performance was broadly in line with our expectations. Operationally, it was a strong quarter with DLF reporting sales volume of 2.3mn sq ft, net leasing of 0.44mn sq ft and positive cash flow of Rs 11bn after accounting for interest costs and capex (net of assets sold). We have cut our FY13E profit by 30% to factor in one-off adjustments, but our FY14E profit has been marginally reduced by 5%. We have retained our Buy rating on DLF with a revised TP of Rs296 (from Rs260), which is at a 15% discount to our one-year forward NAV, as we rolled forward the target multiple to FY14.

Net debt declines by Rs18.7bn: DLF’s net debt fell by Rs18.7bn in 3QFY13, resulting in net D/E ratio of 0.76x versus 0.84x (2QFY13) as the sale of NTC mill land (Lower Parel, Mumbai) got reflected during the quarter. The recent sale of Aman Resorts and wind power business is likely to bring down its debt by Rs18bn in 4QFY13E. We have retained our net D/E ratio assumption of 0.6x by FY14E led by non-core asset sales and improvement in operating cash flow (launch of high-value new projects). Further, we have not factored in likely equity dilution of Rs15bn (fresh issuance) in order to bring down the promoters’ stake to 75% (from 78%) under the new Securities and Exchange Board of India guidelines. This helps further in setting right its balance sheet.

Strong volume; pick-up in leasing: DLF launched ~1.8mn sq ft of projects in Gurgaon (1.2mn sq ft) and Chandigarh (0.6mn sq ft) where the response was encouraging. This led to 2.3mn sq ft of sale volume (up 45% QoQ). Net leasing was strong at 0.44mn sq ft (up 83% QoQ), the highest since 2QFY12. The management has renewed its focus on launching high-value projects in the coming quarters as against low-value plot sales in FY12/1HFY13, which is likely to improve operating cash flow.

Outlook: DLF has outperformed BSE Sensex by 15% over the past two months on expectation of improvement in cash flow, which was quite visible in 3QFY13. We expect further improvement in cash flow led by the launch of high-value new projects and noncore asset sales. Our NAV factors in net debt of Rs180bn in FY14E (a reduction of Rs33bn from the current level).