21 February 2013
Poised for 3x growth in operating income by FY16
Visited key NCR sites; growth drivers intact
DLF showcased its major NCR properties along with development scope in a two-day
Site Visit cum Analyst Meet. The top management / business heads, including
Managing Director, Mr Rajiv Singh, shared their vision and business plans. Our key
The management's focus is back on core operations post divestment success. It
continues to prefer land value maximization over volume acceleration.
The company targets steady-state normalized EBITDA of INR82.5b, FCFE of INR35+,
and net debt of INR100-110b by FY16.
Following our site visits, we have greater clarity on the potential of DLF's NCR projects; its monetization plans are largely
on track. We expect DLF to witness encouraging boost in core operating cash flow (positive FCFE by FY15E), coupled with
Takeaways from site visits
Continues to prefer land value maximization over volume acceleration
Equity Shares (m)
M.Cap.(INR b)/(USD b) 467/8.6
52-Week Range (INR) 282/170
1,6,12 Rel. Perf. (%)
Post the completion of the divestment cycle, which has bolstered de-leveraging
visibility, the management's focus is back on consolidating the core business,
with a 4-pronged strategy: (1) conservative business approach (to combat sectoral
uncertainties), (2) selective market mix and phased churning of profitable assets
(land value maximization preferred over volume game), (3) value creation through
infrastructure development, and (4) bringing down overall leverage to Rent Co
cover-up level (keeping the Dev Co debt-free). The business will remain asset
heavy, diluting RoE (targets 15%+ v/s the current 3-4%), albeit lower RoE would
overlooks inherent value accretion.
Selective, high value asset churn to drive 3x growth in normalized EBITDA
The management expects 3x growth in normalized EBITDA to INR82.5b by FY16
(v/s sub-INR30b currently), driven by (a) INR55b from Dev Co (high value launches,
with annual sales of 8msf), and (b) INR27.5b from Rent Co (60% growth in rentals
over FY13-16), translating into FCFE of INR35b+. This coupled with divestments
and two rounds of equity issuance over the next three years is likely to bring
down net debt to INR100b-110b.
Visited key NCR sites - better clarity on NCR potential, monetization plans
largely on track; FCFE to turn positive by FY15
We visited DLF's key sites - Cyber City, Phase-V, New Gurgaon (Gurgaon), Capital
Greens, existing Malls (Delhi) and Mall of Noida (Noida), which gave us better
clarity on its development potential of ~120msf in NCR. While ongoing projects
are broadly on track, the strong infrastructure initiatives bolster confidence in
the potential value accretion in Cyber City. High value launches, though deferred
to FY14, will aid significant scale-up in pre-sales run rate from FY14 onwards. On
the back of high value launches, steady growth in rental business and de-
leveraging, we expect DLF to witness encouraging boost in core operating cash
flow and generate positive FCFE by FY15.
(Sandipan.Pal@MotilalOswal.com); +91 22 3982 5436
Investors are advised to refer through disclosures made at the end of the Research Report.