Maintain BUY on DLF - Well placed to ride headwinds - HDFC Securities

Mr. Parikshit D Kandpal, Institutional Research Analyst, HDFC Securities.

DLF (Q4FY20): Well placed to ride headwinds. Maintain BUY
(TP Rs 219, CMP Rs 157, MCap Rs 389bn)

DLF Ltd (DLF) reported better than expected Rev/EBIDTA/APAT 24/37/45% beat. One time DTA reversals on new ETR migration of Rs 19.2bn and exceptional impairment of certain Hotels/Clubs investment worth Rs 3.3bn let to reported loss of Rs 18.6bn. DLF Phase V saw buyers cancellation worth Rs 3.9bn, reporting negative sales of Rs 80mn, new buying of Rs 3.8bn is positive. Office rental collections remain robust at 90/80% for Apr/May-20 and may touch 90% for May-20 by first week of June-20. Malls are expected to open with strict social distancing norms by mid Jun-20. Balance sheet remains comfortable net D/E of 0.1x. We maintain BUY on DLF with SOTP of Rs 219/sh (vs. Rs 224/sh earlier).

One offs led to reported loss: Whilst adjusted 4QFY20 headline numbers were ahead of our expectations, one offs led to reported loss of Rs 18.6bn. On account of cash flow tax optimization, DLF has opted for new ETR from FY20, while not embracing the same for DCCDL business. This led to DTA tax write down of Rs 19.2bn. Residential pre-sales for FY20 stood at Rs 24.8bn below the Rs 27-28bn guidance on account of Mar-20 lockdown and Rs 9.6bn cancellation largely in Camellias projects. DLF believes cancellation is behind now with 75% of buyers carrying fit out in Camellia project.

Ready inventory to see delayed monetization, new launches to remain on track: In a tough environment DLF has unsold nearing completion inventory of Rs 91bn (vs. Rs 94bn QoQ). About ~53% high value inventory is in DLF Phase V (Rs 31,620/sqft) and hence it will be challenging to monetize the same. DLF remains committed to new launches of independent floors, total launches of 10mn sqft is being planned by FY21 end. Phase V next phase may get delayed due to existing high unsold inventory. DLF has changed its launch strategy and is now targeting launches, once basement is reached rather than earlier strategy of launches being more back ended.

Rental business consolidation, calibrated build out now: DLF is re-assessing capital deployment in Rental business. The focus is to complete Phase 1 of new developments of DLF Downtown Gurgaon and Chennai, 2mn sqft each. Hines JV is back on discussion board on way forward. We expect work from home to impact 10-15% office demand and hence most developers will scale down office build out in near term. DLF total FY20 Rental income stood at Rs 30bn with 30.3mn sqft operational portfolio with 95% occupancy. Net incremental leasing for FY20 stood at 1.3mn sqft.

We maintain BUY on DLF as its well placed to ride the COVID-19 headwinds. Balance sheet remains strong, new affordable launches may drive pre-sales and Cash flow may improve depending on Phase-V sales. Key risks (1) Further delays in monetization of luxury segment inventory (2) Inability to fully utilize mark-to-market potential from rental assets.

Shares of DLF LTD. was last trading in BSE at Rs.157.2 as compared to the previous close of Rs. 156.4. The total number of shares traded during the day was 1447513 in over 11183 trades.

The stock hit an intraday high of Rs. 158.1 and intraday low of 148.85. The net turnover during the day was Rs. 222387200.

Source : Equity Bulls

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