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					                                                     DLF
                                                     Rs230.30 - OUTPERFORM



                                                     Getting its act together




                                                                                                                                               Results preview
Mahesh Nandurkar,
CFA                                                  An improved pace of project launches in 1Q is an early sign that DLF may
mahesh.nandurkar@clsa.com                            be able to deliver on launch/sales expectations for the year. DLF is also
(91) 2266505079                                      gaining traction on two other parameters – project delivery and debt
Abhinav Sinha                                        reduction – where DLF has often fallen behind its promises. 1Q results,
(91) 2266505069                                      meanwhile, gain importance as margin is expected to normalize post a
                                                     dismal 4Q performance. Expectations of asset sales driving debt reduction
                                                     and rising deliveries can be near term triggers.

                                                     1Q launch pace sets stage for FY12 guidance beat
                                                     Launch of two plotted development projects by DLF in 1Q (Indore and
07 July 2011                                         Gurgaon) has brought total area launched in FY12 (4.5m sf) to 60% of total
                                                     launches in FY11 (7.5m sf, back-loaded). Up-fronting of launches, as well as
India                                                strong sales, raise the possibility of guidance beat (10-12m sf) as we see
Property                                             visibility on a further 8-10m sf of launches during the remainder of FY12.
Reuters                      DLF.BO                  FY12 resi deliveries > cumulative for the last 4 years
Bloomberg                    DLFU IB                 Of the 39m sf of development projects that DLF is working on as of Mar’11,
Priced on 6 July 2011                                c.70% are pre FY10 projects. Deliveries of the same will commence from
India Sensex @ 18,727.0                              3QFY12 with ~12m sf expected in FY12 (10m sf in Phase V Gurgaon, 3m sf in
                                                     Chennai) and a further 10-12m sf in FY13 (Mid-income housing at Gurgaon,
12M hi/lo      Rs397.35/206.55
                                                     Kolkata, Kochi). This contrasts well against just 8.7m sf of deliveries of
12M price target             Rs277.00                development properties during FY08-11. Delivery of older projects will likely
±% potential                 +20%                    reduce margin volatility as older projects are prone to cost estimation errors.
Target set on                25 May 11
                                                     Asset sales may trigger chunky debt reduction
Shares in issue              1,697.4m
Free float (est.)            21.4%
                                                     While DLF has sold Rs30bn of non-core assets during the last two years, the
                                                     same has not corroborated with a reduction in debt. Media reports suggest
Market cap                   US$8,792m               that DLF is near sale of its 70% stake in two office buildings (Pune and Noida)
3M average daily volume                              for Rs9-10bn; additionally sale of Aman may also raise upto Rs20bn for DLF.
Rs1,572.3m                   (US$35.2m)              We have built-in a Rs12bn debt reduction during FY12, but if the above asset
                                                     sales materialise, debt reduction could be higher at Rs30-40bn.
Foreign s'holding 15.7%

Major shareholders
                                                     Margin normalization awaited in 1Q
Promoter 78.6%                                       A 20% rise in sales volumes YoY is expected to lead DLF to report 13% YoY
FIIs 15.7%                                           growth in 1QFY12 revenues. Focus is on margins though as construction cost
                                                     appreciation in FY11 led DLF’s margins contract 8ppt YoY to 39%. 1QFY12 is
                                                     likely to see a margin rebound (we expect 45%), partly on rising proportion
                                                     of plot sales to revenues, even as material costs stay high. While it is still
                                                     early days, DLF’s management efforts to meet its commitments in FY12 are
Stock performance (%)                                encouraging. High PE multiple remains a deterrent.
                        1M          3M       12M
Absolute             (1.2)       (14.2)     (17.9)
Relative             (3.1)        (9.9)     (23.6)   Financials
Abs (US$)            (0.3)       (14.4)     (13.6)   Year to 31 Mar                          09A       10A       11A     12CL         13CL
            (Rs )                   (%)
                                               150   Revenue (Rsm)                       100,354    74,229    95,606    96,593      105,952
 470                                                 Ebitda (Rsm)                         55,900    35,116    37,527    43,852       50,049
                                               100   Net profit (Rsm)                     44,682    18,140    15,424    18,184       22,989
 395
                                                     EPS (Rs)                                26.2      10.7       9.1     10.7         13.5
 320
                                               50    CL/consensus (35) (EPS%)                   -         -         -       86           90
 245                                                 EPS growth (% YoY)                    (42.8)    (59.4)    (14.9)     17.9         26.4
 170                                           0
                                                     PE (x)                                   8.8      21.6      25.4     21.5         17.0
   Jul-09   Jan-10      Jul-10     Jan-11            Dividend yield (%)                       0.9       0.9       0.9      1.1          1.3
                     DLF (LHS)                       PB (x)                                   1.7       1.6       1.6      1.5          1.4
                     Rel to Sensex (RHS)
                                                     ROE (%)                                 21.2       7.4       6.1      7.1          8.4
Source: Bloomberg
                                                     Net debt/equity (%)                     70.6     106.1      97.4     86.7         80.3
www.clsa.com                                         Source: CLSA Asia-Pacific Markets


Find CLSA research on Bloomberg, Thomson Reuters, CapIQ and themarkets.com - and profit from our evalu@tor® proprietary database at clsa.com
                               Getting its act together                                                               DLF - O-PF




                               Getting its act together
                               Figure 1

                               Estimate of project pipeline for FY12
                                                                   Area Base Selling Launch/
                               Project                            (m sf) price (Rs/sf) expected                                 Comment
  4.5m sf+ of launches in      Indore - premium plots              2.3           1,100      1QFY12                   Est. sales of 0.5m sf
  1QFY12 against 10-12m        Gurgaon - Garden City plots
     sf guidance for FY12
                               - Phase I                           2.5*          4,500      1QFY12                1.3-1.5m sf sales in 1Q
                               Panchkula plots                      1        3,500          2QFY12           Part of ongoing project
                               Lucknow plots                        2        1,000          2QFY12    Being marketed as Garden city
                               Gurgaon aprtmnts - mid end           1        4,500          2HFY12                Located near NH8
                               Gurgaon aprtmnts - high end          1        15,000         2HFY12                   Phase V project
                               Chandigarh Hyde Park plots                                              Follow on to project launched
                               - Phase II                           2            3,000      2HFY12                           in 4Q11
                               Gurgaon - Garden City plots
                               - Phase II                           2            4,500      2HFY12         Additional land near Phase I
                               Total                               14
                               Source: CLSA Asia-Pacific Markets. *Free sale component of ~1.5m sf. Area of ~0.6-0.8m sf is sold as
                               ‘No-Profit-No-Loss’ (NPNL) plots and ~0.2m sf handed over to government for weaker sections.
                               Figure 2

                               Area and value sales trend (residential + commercial)

   Expect 2.5m sf/Rs13bn                  50                                                                                        5.0
                                                Rs bn                             Area sold (RHS)                       m sf
          sales in 1QFY12
                                                                                  Value sales
                                          40                                                                                        4.0


                                          30                                                                                        3.0


                                          20                                                                                        2.0


                                          10                                                                                        1.0


                                          0                                                                                         0.0
                                                1Q10      2Q10   3Q10     4Q10     1Q11   2Q11      3Q11     4Q11 1Q12C L

                               Source: CLSA Asia-Pacific Markets

                               Strong ramp-up in delivery trend seen
                               Figure 3

                               Annual project deliveries

   DLF has averaged 6m sf                                                 Annuity property
        of annual deliveries
                                      14.0
                                                m sf                      Development property
    during FY08-11 against                                                                                 12-13
     an under construction            12.0
   pipeline average of 54m                                                                                                 10-12
                          sf          10.0          8.8

   FY08-09 deliveries were                8.0                    7.3                         7.1
 primarily concentrated on
  the office (DAL) and mall               6.0                                                                12
                   portfolio                        7.0                                      4.1                               10
                                                                 5.0
                                          4.0
                                                                                 2.1
                                          2.0                                    0.6
                                                                 2.3                         3.1
                                                    1.8                          1.5
                                          0.0
                                                   FY08          FY09            FY10       FY11           FY12C L        FY13C L

                               Source: CLSA Asia-Pacific Markets



07 July 2011                   mahesh.nandurkar@clsa.com                                                                                  2
                               Getting its act together                                                    DLF - O-PF




                               Delivery of 25m sf+ targeted in FY12-13
                               Figure 4

                               DLF residential projects expected delivery timelines
                                                                           Area       Expected
                               Project                                    (m sf)       delivery                Current stage
   Actual deliveries can get   Magnolias, Ph V Gurgaon                      5          3QFY12              Finishing/handover
         delayed as getting
                               Park Place, Ph V Gurgaon                     3          3QFY12                        Finishing
      Occupancy certificate
  (OC) can be a long drawn     Belaire, Ph V Gurgaon                        2          4QFY12                        Finishing
       government process      Garden City, Chennai                         3         3Q/4QFY12            Structure/Finishing
                               Total FY12                                 12-13
    Deliveries within same     New Town Heights Kolkata                     2          1HFY13                       Finishing
         project can differ    Riverside, Vytilla Kochi                     1          1HFY13                       Finishing
                               New Town Heights Sec86, 90, 91 Gurgaon       6          2HFY13          Structure upto terrace
       Additionally expect
                               Express Greens Sec M1, M1A Manesar           2          2HFY13       Structure at middle floors
        Queens Court, GK;
       Alameda plots to be     New Town Heights Kakkanad, Kochi             2          2HFY13                Structure works
         delivered by FY13     Total FY13                                 10-12
                               Source: CLSA Asia-Pacific Markets


                               Asset sales of Rs30bn possible in next six months
                               Figure 5
       Possibility of office
  property sale completing     List of large asset sales possible in near term
     earlier (2Q) is higher                                                                                Value to DLF (Rs
                               Asset                                      Description                                   bn)
     Aman stake sale talks                              5.1m sf total; 1.8m sf completed and leased; In
   have been on and off for    Pune IT SEZ                            70:30 JV with Ackruti                               6-7
                 two years
                                                        1.4m sf total completed; partly leased; In 70:30
                               Noida IT park                            JV with 3C group                                2.5-3
  Additionally, DLF targets
     Rs10bn of other asset     Aman resorts            Hotel chain; 97% acquired for US$400m in Nov'07                     20
  sales (land, buildings) in   Total                                                                                      30
                       FY12    Source: CLSA Asia-Pacific Markets


                               Expect margins to recover post low base in 4Q
                               Figure 6

                               1QFY12 earnings estimates
 4Q had one time impact of     (in Rsm)                       1QFY11      4QFY11      1QFY12CL       %YoY           %QoQ
   Rs4.75bn on account of      Net Sales                       20,285      26,831       22,960       13.2%         -14.4%
  cost inflation on ongoing    Total Expenses                 (10,490)    (20,169)     (12,566)
                    projects
                               EBITDA                           9,796       6,662       10,393       6.1%          56.0%
                               Ebitda Margin (%)               48.3%       24.8%        45.3%
 Lower base, higher mix of     Depreciation                    (1,498)     (1,657)      (1,700)       13.5%        2.6%
    plotted sales will help    Interest                        (3,884)     (4,557)      (4,600)       18.4%        0.9%
       recover margins in      Other Income                     1,321       1,866        1,400        6.0%        -25.0%
                  1QFY12       PBT                              5,734       2,314        5,493       -4.2%        137.4%
                               Tax                             (1,679)      (156)       (1,373)      -18.2%       783.2%
                               Effective Tax Rate               29.3%       6.7%         25.0%
  Commodity costs are still
                               PAT                              4,056       2,159        4,120       1.6%          90.9%
       high YoY, flat QoQ
                               Minority and Associates            55        1,287          0
                               Reported Profit                  4,110       3,445        4,120       0.2%          19.6%
                               Source: CLSA Asia-Pacific Markets




07 July 2011                   mahesh.nandurkar@clsa.com                                                                    3
                              Getting its act together                                                   DLF - O-PF




                              Summary financials
                              Year to 31 March            2009A                2010A      2011CL      2012CL      2013CL
                              Summary P&L forecast (Rsm)
                              Revenue                    100,354              74,229       95,606      96,593    105,952
                              Op Ebitda                    55,900              35,116       37,527      43,852     50,049
                              Op Ebit                      53,511              31,866       31,220      37,010     42,756
     Profit growth in FY12    Interest income                   0                   0            0           0          0
    driven by higher sales
                              Interest expense            (5,548)            (11,100)     (17,056)    (18,515)   (17,854)
  contribution from higher
                              Other items                   3,960               4,280        5,839       5,750      5,750
              margin plots
                              Profit before tax           51,922              25,046       20,002      24,245     30,652
                              Taxation                    (6,754)             (7,022)      (4,594)     (6,061)    (7,663)
                              Minorities/Pref divs          (486)                 116           16           0          0
                              Net profit                  44,682              18,140       15,424      18,184     22,989

                              Summary cashflow forecast (Rsm)
                              Operating profit              53,511             31,866      31,220      37,010      42,756
                              Operating adjustments               0                  0           0           0           0
                              Depreciation/amortisation       2,390              3,249       6,307       6,842       7,294
                              Working capital changes      (52,111)             50,776      19,814      12,287     (2,379)
                              Net interest/taxes/other      (7,331)            (5,206)    (39,672)     (6,061)     (8,544)
                              Net operating cashflow       (3,542)             80,686      17,669      50,078      39,126
     We build in Rs10bn in
                              Capital expenditure          (38,364)         (144,112)     (11,280)    (16,880)    (17,674)
       asset sales in FY12
                              Free cashflow               (41,907)          (63,426)         6,389     33,199      21,453
                              Acq/inv/disposals             (4,923)          (41,027)       45,094           0           0
                              Int, invt & associate div     (3,309)              3,151    (12,378)    (12,765)    (12,104)
                              Net investing cashflow      (46,596)         (181,988)       21,436    (29,645)    (29,777)
                              Increase in loans              45,578             98,804    (17,959)     (7,036)    (10,000)
                              Dividends                     (3,716)            (3,979)     (3,979)     (4,974)     (5,969)
                              Net equity raised/other       (1,189)              3,804    (12,988)           0           0
                              Net financing cashflow        40,673             98,628    (34,927)    (12,010)    (15,969)
                              Incr/(decr) in net cash      (9,465)            (2,674)        4,178       8,424    (6,620)
                              Exch rate movements                 0                  0           0           0           0
                              Opening cash                  21,421             11,956        9,282     13,461      21,885
                              Closing cash                  11,956               9,282     13,460      21,885      15,265

                              Summary balance sheet forecast (Rsm)
                              Cash & equivalents             11,956             9,282      13,461      21,885      15,265
                              Debtors                        95,449            59,863      60,931      60,499      62,012
    Other assets is largely   Inventories                  109,282            124,806     150,388     154,456     158,583
      unbilled receivables    Other current assets            2,417             3,173      35,227      35,227      36,107
                              Fixed assets                 136,006            276,868     281,841     291,879     302,259
                              Intangible assets              22,651            12,680      13,840      13,840      13,840
                              Other term assets              97,534            75,933      74,345      64,345      65,913
                              Total assets                489,320            617,658     639,990     652,089     663,936
                              Short-term debt                     0                 0           0           0           0
                              Creditors                      39,867            34,682      78,810      80,781      82,800
                              Other current liabs            38,377            53,089      52,204      56,158      58,966
                              Long-term debt/CBs           177,161            275,965     258,006     250,970     240,970
                              Provisions/other LT liabs           0             2,515           0           0           0
                              Minorities/other equity         6,336             6,278       5,752       5,752       5,752
                              Shareholder funds            227,578            245,129     245,218     258,428     275,448
                              Total liabs & equity        489,320            617,658     639,990     652,089     663,936

                              Ratio analysis
                              Revenue growth (% YoY)              (30.5)       (26.0)         28.8         1.0         9.7
                              Ebitda growth (% YoY)               (42.4)       (37.2)          6.9        16.9        14.1
   Margin recovery in FY12    Ebitda margin (%)                     55.7          47.3        39.3        45.4        47.2
     driven by mix of plots   Net profit margin (%)                 44.5          24.4        16.1        18.8        21.7
              being higher    Dividend payout (%)                    7.7          18.8        22.1        23.4        22.2
                              Effective tax rate (%)                13.0          28.0        23.0        25.0        25.0
                              Ebitda/net int exp (x)                10.1           3.2         2.2         2.4         2.8
                              Net debt/equity (%)                   70.6        106.1         97.4        86.7        80.3
                              ROE (%)                               21.2           7.4         6.1         7.1         8.4
                              ROIC (%)                              13.7           5.4         5.1         5.7         6.5
                              EVA®/IC (%)                            0.9         (7.1)       (7.5)       (6.8)       (6.0)
                              Source: CLSA Asia-Pacific Markets




07 July 2011                  mahesh.nandurkar@clsa.com                                                                 4
                                           Getting its act together                                                                 DLF - O-PF




                                           Recommendation history - DLF Ltd DLFU IB
                                           Date                                       Rec level             Closing price                       Target
                                           25 May 2011                                     O-PF                   218.95                        277.00
                                           01 February 2011                                O-PF                   223.90                        313.00
                                           05 January 2011                                 O-PF                   291.45                        370.00
                                           31 December 2010                                 U-R                   287.00                        411.00
                                           11 November 2010                                O-PF                   362.45                        411.00
                                           29 September 2010                               O-PF                   378.00                        417.00
                                           25 August 2010                                  O-PF                   322.25                        363.00
                                           06 July 2010                                    U-PF                   281.15                        300.00
                                           15 May 2010                                     U-PF                   298.75                        331.00
                                           02 March 2010                                   U-PF                   297.15                        340.00
                                           29 January 2010                                 U-PF                   324.55                        357.00
                                           07 October 2009                                 SELL                   416.90                        363.00
                                           Source: CLSA Asia-Pacific Markets




Key to CLSA investment rankings: BUY = Expected to outperform the local market by >10%; O-PF = Expected to outperform the local market
by 0-10%; U-PF       Expected to underperform the local market by 0-10%; SELL = Expected to underperform the local market by >10%.
Performance is defined as 12-month total return (including dividends).

©2011 CLSA Asia-Pacific Markets (“CLSA”).                                Note: In the interests of timeliness, this document has not been edited.
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07 July 2011                               mahesh.nandurkar@clsa.com                                                                                   5

				
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