Motilal Oswal maintains ‘buy’ on DLF but lowers NAV

MUMBAI: Motilal Oswal maintained ‘buy’ call on DLF at Rs 257 per share. However, the brokerage has lowered the NAV for DLF by 24.7 per cent from Rs480/share to Rs361 / share to account for slower launch of new projects and lower real estate prices. The residential vertical accounts for 42 per cent of the GAV, commercial vertical 32 per cent of GAV, and the retail vertical for 17 per cent of the GAV. Motilal Oswal views DLF as the best managed real estate company in India with a robust business model.

DLF Assets (DAL) is close to finalizing fund raising of $450 million, which could get announced by January 2009 and this would lower DLF’s receivables and improve its liquidity. DAL is likely to have 10 msf of rental portfolio by March 2009, which could yield Rs30b of cash flow through rental cash flow discounting with banks.

DLF has an agreement to sell 19msf of commercial offices to DAL by FY10-11. Till date, the company has sold 11.4msf of commercial offices to DAL (5.5msf delivery) amounting to Rs 107 billion, of which it has already received Rs 59 billion and Rs48 billion is outstanding.

DLF currently has a net debt to equity ratio (DER) of 0.6x, which is likely to come down to 0.3-0.4x by FY10, aided by cash inflows from DAL, shift in strategy from lease to sale model and postponement of few capital intensive projects. DLF’s DER is among the lowest in its peer group. DLF’s low gearing puts it in a strong position to benefit from the current downturn in the RE sector.

The sharp deterioration in the real estate (RE) sector since 2HFY09 is likely to result in DLF falling short of its planned launch and delivery targets for FY09. While DLF was earlier planning to launch close to 35-40msf of real estate projects across verticals in FY09, it now expects total launches in FY09 to be 14-15msf (it has launched 6-7msf till 1HFY09). The company could end up delivering 14msf (completed 6-7msf YTD) as against the delivery guidance of 22-24 msf.

source: Economictimes

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