Recommendations » India

DLF 3QFY2012 performance highlights and results update

Contributed by Angel Broking

DLF’s 3QFY2012 results were below our expectations. The company’s revenue declined by 18.0% yoy to Rs.2,034cr. OPM for the quarter came in at 40.4%, down 706bp yoy, below our expectation of 43.7%. PAT declined by 44.6% yoy to Rs.258cr, below our expectation of Rs.414cr. We recommend Neutral on the stock.

Earnings below expectation: DLF reported an 18.0% yoy decline in its revenue to Rs.2,034cr. Leasing volume dipped during the quarter to 0.42mn sq. ft. compared to 0.66mn sq. ft. in 2QFY2012 and 1.97mn sq. ft. in 3QFY2011. The company booked 3.3mn sq. ft. in 3QFY2012 compared to 1.3mn sq. ft. in 2QFY2012 and 2.5mn sq. ft. in 3QFY2011. OPM came in at 40.4%, down 706bp yoy, on account higher input cost. Operating profit declined by 30.2% yoy to Rs.823cr because of lower revenue and margin compression. Interest cost grew by 44.8% yoy (up 17.8% qoq) to Rs.620cr due to increased leverage and lower capitalization of interest on the back of project completion. PAT came in at Rs.258cr, down 44.6% yoy (down by 30.6% qoq) and below our estimate of Rs.414cr. The company closed two IT Park deals worth Rs.785cr during the quarter.

Outlook and valuation: DLF is optimistic on selling ~12mn sq. ft. in FY2012.  The company plans to change its sales mix by selling more plotted land during the year. However, there is a risk to the company’s guidance, considering the delay in approvals and slowdown in the recent months on the back of interest rate hike. We expect DLF to book ~12mn sq. ft. in FY2012 and expect flat volume growth in FY2013E, considering the weaker macro environment. Further, DLF lacks near-term triggers, given the kind of muted visibility on debt reduction, though the company plans to divest Rs.6,000cr–7,000cr in 2–3 years to reduce debt. Hence, we recommend Neutral on the stock.