15 November 2012
2QFY13 Results Update | Sector: Real Estate
DLF
BSE SENSEX
S&P CNX
18,670
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
M.Cap. (INR b)
M.Cap. (USD b)
5,684
DLFU IN
1,714.4
261/170
-6/-2/-18
353.2
6.4
CMP: INR206
TP: INR286
Buy
DLF's 2QFY13 results were below estimates due to disappointment in revenue booking.
Revenues declined 19.5% YoY (-7.2% QoQ) to INR20.4b (v/s est INR21.3b), which is estimated to include (1)
annuity income of INR4.8b (rental INR4b), (2) hotel and power (~INR1.6b) and (3) POCM revenues of ~INR13b.
EBITDA fell 36.4% YoY (down 30.1% QoQ) to INR7.5b (v/s est INR8.8b), while EBITDA margin stood in line with
expectation at 41%. PAT declined 62.8% YoY (down 52.7% QoQ) to INR1.4b (v/s est INR2.3b), driven by lower
revenue booking and other income.
Sales remained subdued due to lack of new launches at 1.59msf (INR6-6.5b) v/s 1.34msf (INR6b) in 1QFY13 and
1.3msf (INR6.3b) in 2QFY12. It guided for a strong pick-up in new launches over 2HFY13 (9-10msf), with market-
mix skewed towards Gurgaon (8.5mf of planned launches) and product-mix towards premium/luxury segment
or plotted development. Company targets for INR35-40b sales from Phase V and Gurgaon launches over 2HFY13.
Weak commercial market outlook and cancellations continue to impact leasing volumes -- net leasing stood at
0.24msf (0.29msf in 1QFY13). Achieved 0.53msf in 1H v/s FY13 leasing guidance of ~2msf. However, management
indicated encouraging and strengthening of rental values at Cyber City.
We estimate QoQ/YoY uptick in collections in Dev Co. However, net cash flow posted a deficit of INR5.6b due
to (a) higher tax outflow, (b) dividend payment and (c) government charges. The government charges of
INR3.5b pertain to licence fees and development charges for upcoming launches.
Negative surplus of ~INR5.6b led to net debt of INR240b (net DER 0.92x). However, post receipt of the final
tranche of NTC land deal (INR27.27b), net debt stood at INR220b as in November 2012.
While DLF achieved divestment of INR31.3b (NTC Mills and DLF Hotels) in 1HFY13, it remains confident of
~INR50b target with (a) divestment of Aman resort (INR17-18b) by 3QFY13, (b) Windmills (INR9b) by 4QFY13
and (3) other miscellaneous transactions of INR5b to be closed by FY13. It maintains the de-leveraging guidance
for FY13 at ~INR185b, implying a reduction of ~INR42b in FY13 v/s our estimate of net reduction of INR20-22b.
Sandipan Pal
(Sandipan.Pal@MotilalOswal.com); +91 22 3982 5436
Investors are advised to refer through disclosures made at the end of the Research Report.
1

DLF
Revenue booking deteriorates amidst in line margin; lower revenue dent
PAT despite decline in interest expense
Revenue de-grew 19.5%YoY (-7.2%QoQ) to INR20.4b (v/s est INR21.3b), which
includes (1) annuity income of INR4.8b (lease rental INR4b), (2) Hotel and Power
(INR1.6b) and (3) POCM revenue of ~INR13b.
EBITDA de-grew 36.4%YoY (down 30.1% QoQ) to INR7.5b (v/s est INR8.8b), while
EBITDA margin stood in line with expectation at 41% (v/s 48.6% in 1QFY13 owing
to certain accounting adjustments).
PAT declined 62.8%YoY (down 52.7%QoQ) to INR1.4b (v/s est INR2.3b), driven by
lower revenue booking and other income.
Financial expense declines sharply QoQ by almost INR1b on account of higher
capitalization - yet continue to remain a drag on profitability (70% of EBITDA).
Consolidated numbers include INR829m of net loss from insurance and hotel
businesses.
Net debt/ EBITDA up in 2Q,
but declined thereafter (%)
Cash conversions improves QoQ,
back to 4QFY12 level
EBITDA margin down QoQ after
adjustment in 1QFY13 (%)
Source: Company, MOSL
Sales weak due to no major launch; leasing run-rate sluggish, repeated
cancellations concerning
DLF's 2QFY13 sales performance remains subdued on the back of lack of new
launches. It sold 1.59msf (estimated sales value of ~INR5.8b) v/s 1.34msf (INR6b)
in 1QFY13 and 1.3msf (INR6.3b) in 2QFY12. Gurgaon projects accounted for ~25%
of sales (v/s ~50% in 1QFY13) - resulting into sequentially lower blended
realizations.
It has guided for a strong pick up in new launches over 2HFY13 (9-10msf) with
market-mix skewed towards Gurgaon (8.5mf of planned launches) and product-
mix towards premium/luxury segment or plotted development - where it has
witnessed a strong success in FY12. It targets for INR35-40b of sales over 2HFY13
from its upcoming launches in Phase V and New Gurgaon.
We expect launch of its super luxury project Magnolia II would be a critical factor
to drive FY13 sales. We estimate FY13 sales of INR60b (achieved 20% in 1HFY13) v/
s management guidance of INR65b.
Subdued commercial market outlook continue to impact leasing volume. Gross
leasing volume stood at 0.51msf v/s 0.96msf in 1QFY13, but net leasing stood at
15 November 2012
2

DLF
0.24msf due to cancellations. The repeated cancellations are largely attributable
to Shilokhera SEZ and are a huge downside risk to its FY13 leasing guidance of
~2msf (achieved just 27% over 1HFY13)
Total area under lease stood at ~23.2msf. Rental income from commercial and
retail spaces remains steady QoQ at INR4b, while total annuity income declined
to INR4.8b v/s INR4.7b in 1QFY13. It indiacted for encourgaing pick-up in rental
values, especially at Cyber City to INR65-70/sf/m/
We estimate rental income to grow from INR16b in FY12 to ~INR18b in FY13. The
management has guided for increase in focus over improving average rentals and
leasing of semi-finished and ready to occupy properties thereby limiting other
capex in the near term. Guided for 15-18% YoY jump in exit rental run-rate by FY14
to ~INR21b (also boosted by commencement of Mall of Noida),
During 1HFY13, DLF delivered 2.8msf of rental assets, which would be key
contributor to rental growth in FY13. It targets for a delivery of 12-15msf over FY13
... but expected to improve in 2HFY13 with
surge in new launches
Sales (msf) sluggish on the back of lack of new launches...
Leasing volume hit by several cancellations (msf)
Execution uptick visible with construction commencing
in ~7.1msf
Source: Company/MOSL
15 November 2012
3

DLF
Operating cash flow improves; Net debt down ~INR16b (v/s 4QFY12 level)
as on Nov-12 on the back of NTC proceeds; strong FY13-14 de-leveraging
guidance maintained
We find cash generation from operations is yet to break even operating expenses
and interest payment. However our estimate suggest for QoQ/YoY uptick in
collections in Dev Co.
A broad based estimate suggests inflow of ~INR31b (INR23-24b customer
collections, INR4.8b of annuity income, INR5.6b of divestment proceeds from
NTC and rest other income INR0.9b) and outflow of ~INR37b (Construction expense
INR7.5-8b, capex INR3.7b, overheads of INR4.7b, interest INR7.3b, tax INR3.7b,
Government charges of INR3.5 and Dividend of INR4.8b). The government charges
of INR3.5b pertains to license fees and development charges for upcoming
launches.
This has led to a negative surplus of ~INR5.6b, leading to net debt of INR240b (net
DER 0.92x). However post receipt of the final tranche of NTC land deal (INR27.27b),
the net debt stood at INR220b as on Nov-12.
While it has achieved divestment of INR31.3b (NTC Mills and DLF Hotels) in 1HFY13,
it remains confident on achieving target of ~INR50b with (a) Divestment of Aman
resort (INR17-18b) in 3QFY13, (b) Windmills (INR9b) by 4QFY13, and (3) Other
miscellaneous transaction of INR5b to be closed by FY13. It maintains de-leveraging
guidance for FY13 at ~INR185b implying reduction of ~INR42b in FY13 v/s our
estimate of net reduction of INR20-22b.
In the medium term, DLF targets further pare down of net debt to <INR150b with
uptick in operational cash flow surplus and equity issuance to bring the free float
to 25% during FY14.
Estimating 2QFY13 cash flow (INR b) - dent by (a) higher tax outflow, (b) dividend payment and
(c) government charges
Cash flow analysis
From sales
Constructions (Dev Co)
Staff Costs
Gross CF at Dev CO
Rental
Operating cost
Gross CF at Rent CO
Other income (interest/Div)
Tax Paid
Operating CF
Leasing capex
Land acqusitions
Interest payment
Dividend payment
Pref Share redemption
Government charges
Net surplus
Divestment
Net cash flow
4QFY12
21.6
6.0
5.5
10.1
4.5
0.5
4.1
1.5
4.1
11.6
1.6
0.0
8.3
0.5
1.2
0.0
-0.1
1.5
1.4
1QFY13
16.9
7.6
4.9
4.5
4.7
0.5
4.2
0.8
1.3
8.2
1.5
2.0
7.4
0.1
0.0
0.0
-2.8
3.7
0.9
2QFY13
19.9
7.6
4.2
8.1
4.8
0.5
4.3
0.9
3.7
9.7
3.7
1.5
7.3
4.8
0.0
3.5
-11.2
5.6
-5.6
Source: Company, MOSL
15 November 2012
4

DLF
Higher visibility on big ticket asset sales (INR b)
Net debt down by ~INR16b in as on November-12 (v/s 4QFY12)
Source: Company, MOSL
Valuation and view: Boost in operations hinges on 2HFY13 launch;
De-leveraging is the immediate catalyst; Timeline on Aman and Wind Mill
deals encouraging
15 November 2012
While 2QFY13 lags our expectations, we expect DLF to surprise positively over
2HFY13 with a steady uptick in core operations in 2HFY13 - much similar to its FY12
performance.
We expect margins and cash flow to be resilient on the back of super premium
launches coupled with inflation-combating strategies. DLF's operating cash deficit
(post interest outgo) is expected to improve meaningfully in FY13 to INR8.1b (v/
s INR20.4b in FY12) before break-even in FY14.
Right product and market-mix, execution ramp-up and strong conviction in
deleveraging should improve operating and financial leverage significantly over
next 6-9months.
While we model in INR20-22b annual debt reduction over FY13/14, resulting into
net DER of 0.8x/0.69x, faster than expected monetization of Aman Resort and
Wind Mill offers strong upside risk. Moreover, DLF offers a strong play on interest
rate down-cycle.
We expect the 2HFY13 triggers to be (a) divestment of Aman resort (INR17-18b)
and windmills (INR9b), (b) higher than expected (INR20-22b) debt reduction, and
(c) successful launch of Magnolia II.
The stock trades at 1.2x FY14 BV and 19.3x FY14 EPS and 28% discount to NAV.
Maintain
Buy.
5

DLF
DLF: an investment profile
Company description
DLF, one of the largest and most respected real estate
companies in India, has developed many well known
urban colonies in Gurgaon, Delhi including South
Extension, Greater Kailash, Kailash Colony and Hauz Khas.
Since inception, DLF has developed ~230msf, including
22 urban colonies and an integrated 3,000-acre township
in Gurgaon, called DLF City.
Recent developments
Negative surplus of ~INR5.6b led to net debt at
INR240b (net DER 0.92x). However post receipt of
the final tranche of NTC land deal (INR27.27b), the
net debt stood at INR220b as on Nov-12.
DLF's 2QFY13 sales performance remains subdued
on the back of lack of new launches. It sold 1.59msf
(INR6-6.5b) v/s 1.34msf (INR6b) in 1QFY13. Gurgaon
projects accounted for ~25% of sales resulting into
sequentially lower blended realizations.
Key investment arguments
DLF is uniquely positioned to leverage long-term
opportunities in India. It has a significant presence
in key cities and market leadership across segments.
DLF has been quick to change gears in favor of a high
volume mid-income housing strategy and plotted
development. Quick monetization through plotted
development could boost its cashflow.
Sincere effort to asset divestment would be key
trigger to de-leveraging.
.
Valuation and view
We expect 2HFY13 triggers to be (a) divestment of
Aman resort (INR17-18b) and Windmills (INR9b), (b)
higher-than-expected (INR20-22b) debt reduction
and (c) successful launch of Magnolia II.
The stock trades at 1.2x FY14E BV and 19.3x FY14E
EPS and 28% discount to NAV. Maintain
Buy.
Sector view
Key investment risks
DLF's net debt stood at INR220b, implying net DER of
0.85x. Cost of debt increased to 12.75% as against
10.5% 18 months back.
Management has guided for INR50b asset sales over
FY13. Successful divestment plan will be key factor.
RE sector has been a major underperformer over the
last 12 months with multiple operational and
nonoperational headwinds such as volume
slowdown (due to declining affordability), monetary
tightening, pilling liquidity pressure etc. However,
with imminent rate cut cycle and increasing instances
of regulatory pressure subsiding, we believe the
outlook will improve going forward.
MOSL
Forecast
8.7
10.7
Consensus
Forecast
9.2
11.3
Variation
(%)
-5.1
-4.9
Comparative valuations
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
FY13E
FY14E
FY13E
FY14E
FY13E
FY14E
FY13E
FY14E
DLF
23.7
19.3
1.3
1.2
6.5
5.1
15.4
12.0
Unitech
27.6
19.9
0.7
0.7
5.6
4.3
37.5
25.6
Oberoi
18.9
11.9
2.3
2.0
7.7
4.7
13.7
7.9
EPS: MOSL forecast v/s consensus (INR)
FY13
FY14
Target price and recommendation
Current
Price (INR)
206
Target
Price (INR)
286
Upside
(%)
38.8
Reco.
Buy
Stock performance (1 year)
Shareholding pattern (%)
Sep-12
Promoter
Domestic Inst
Foreign
Others
15 November 2012
78.6
0.5
16.0
4.9
Jun-12
78.6
0.3
15.8
5.3
Sep-11
78.6
0.4
15.7
5.3
6

DLF
Financials and Valuation
15 November 2012
7

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