Buy DLF - Target Price Rs. 298 - Prabhudas Lilladher

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 US$300m, following the sale of its Mumbai Land Parcel to Lodha at Rs27bn. The third large ticket asset sale is the windmill transaction which also seems to be nearing completion, with the management confident of a closure by March 2013. The three transactions put together are likely to generate Rs50bn for DLF.

High-end launches & equity issuance to further spur cash flows: The company plans to launch ~6m sq.ft of projects in Gurgaon valued at Rs100bn in Q4FY13, which is likely to generate strong cash flows being 80% gross margins projects. A further impetus to cash flows is expected from the likely fresh equity issuance to reduce promoter's stake from the current 78.6% to the mandatory <75% stake by June 2013. The new launches could potentially result in annual cash flows of Rs20bn, while the equity issuance could generate cash of Rs17-20bn.

A new look to the balance sheet: The visibility to pare down debt, which at the end of Q2FY13 stood at Rs232bn (net debt), has increased substantially. DLF expects to bring down net debt to Rs185bn 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 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 Rs206.5bn by March FY13 and Rs159bn by FY14 which shall translate to a DER of 0.75 by FY13 and 0.56 by FY14 (Gross Debt: Equity).

Upgrading to 'BUY': 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 are upgrading our recommendation from 'Reduce' to 'BUY'. The company's NAV stands at Rs368 to which we are attributing a 25% discount to arrive at our target price of Rs276.

Source : Equity Bulls

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