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Research
DLF - Deleveraging on track, growth to follow - Religare
Posted On : 2012-12-20 20:29:09( TIMEZONE : IST )
DLF's sale of Aman Resorts for US$ 300mn is a key positive for the company as it will help reduce debt further to Rs 195bn (19% YTD), thereby moving closer to the management's March'13 guidance of Rs 185bn or a 23% reduction in FY13. We expect deleveraging to continue with asset sales and potential equity issuance (via FPO/IPP) over the coming quarters. This coupled with a potential pick-up in operations (sales & deliveries) would auger well for the stock going ahead. Maintain BUY.
- US$ 300mn deal in line with expectations: DLF's agreement to sell luxury hotel chain Aman Resorts for US$ 300mn is broadly in line with our expectations and is positive for the company's deleveraging plans. The deal is expected to be completed by February'13 and excludes the hotel in Delhi which DLF plans to develop and monetise separately. Even though the EV in USD terms is lower than the purchase consideration (US$ 400mn), the forex gain (purchase at Rs 42/USD vs. Rs 55/USD now) and the excluded property would mean nil loss on its books.
- On track to meet deleveraging target: With this deal, DLF's net debt would be ~Rs 195bn or Rs 10bn higher than management's March'13 target of Rs 185bn. However, this target can easily be met on completion of the Windmills transaction. This coupled with potential cash inflow from an FPO/IPP should keep debt at the target level of Rs 150bn, implying a total Rs 100bn reduction in net debt since March'12.
- Uptick in volumes, deliveries to be the key triggers going ahead: We expect projects worth Rs 110bn+ to be announced over the next few months and pre-sales of Rs 35bn in H2FY13. This should help improve the volume momentum going forward. Further, ~30% of the ongoing projects are scheduled to be completed in the next 2-3 quarters.
- Maintain BUY: DLF is on track to meet its mid-term deleveraging target. This coupled with a potential pick-up in operations and improving macro conditions should help bridge the valuation gap. DLF is our top pick in the real estate space.
