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Research
Buy DLF - CMP: Rs.279, TP: Rs.298 - Prabhudas Lilladher
Posted On : 2013-03-11 20:48:34( TIMEZONE : IST )
Non-core asset sales finally pick up: DLF's much awaited non-core asset sale program has finally caught steam, with the sale of 'Aman' hotel chain at Rs16.5bn (US$300m), following the sale of its Mumbai Land Parcel to Lodha at Rs27bn. The third large ticket asset sale is the partial sale of its energy business to Bharat light & power for Rs2.8bn, with the management confident of divestment of the balance wind power units by March 2013. The three transactions put together have generated ~Rs46.3bn for DLF.
Spur EBITDA, reduce Debt: DLF's target is to spur EBIDTA through additional leasing, high value Phase V launches, New Gurgaon launches as well key launches in its 'Rest of India' portfolio. It targets an EBITDA of Rs82.5bn which shall result in FCF of Rs30bn. This, coupled with two capital issuances totalling to Rs55bn shall lead to targeted debt levels of Rs100bn which can be easily serviced by its rental portfolio.
A new look to the balance sheet: The visibility to pare down debt, which at the end of Q3FY13 stood at Rs213bn (net debt), has increased. DLF expects to bring down net debt to Rs200bn at the end of FY13, post the completion of the non-core asset sale target of Rs50bn as well as the launch of the 'Magnolias' & 'Park Place 2' and further down to Rs150bn, post the equity issuance and a couple of quarters into the launch of the projects. As per our estimates, we expect net debt to trim down to levels of Rs168.5bn by March FY14 and Rs143.1bn by FY15 which shall translate to a DER of 0.60 by FY14 and 0.49 by FY15 (Gross Debt: Equity).
Outlook & Valuations: Visibility on debt reduction has increased substantially with asset sales, forthcoming launches and fresh equity issuance. The stronger balance sheet, coupled with positive operational cash flows, is likely to provide an impetus to new launches and stabilize operations for the company. We maintain our 'BUY' rating on the stock. The company's NAV stands at Rs351 to which we are attributing a 15% discount to arrive at our target price of Rs298.
