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Monday, November 14, 2011

Stock_for_YOU Credit Suisse Puts A SELL on DLF-Target Rs 167

High exposure to NCR market and gearing are a key concern.
DLF continues to derive more than 60% of its sales (volume and value) from the
investor-driven NCR market, which is a key risk in the current environment.
NCR markets currently have among the highest inventory overhang among
major metros, suggesting a potential slowdown of sales and price correction,
which increases risk to cash flows. Further, DLF's key focus in FY12 is on
plotted sales in the NCR region, where investors are key.
Non-improvement in cash earnings remains a worry. The increase in
receivables (billed and unbilled), totalling Rs95 bn have contributed nearly
25% to core property sales (ex-DAL and rent/maintenance income) between
FY08 and FY11. Further, we do not anticipate a rapid improvement in the
unbilled receivables (almost 65% of total receivables) as almost Rs33 bn
relates to an FY11 FSI increase in Gurgaon, where incremental construction
progress on new FSI is slow.
Defensive rent portfolio appears weak. The pending litigation on
CyberCity and Silokhera SEZ is likely to impact fresh leasing progress and
raises risk of potential tenant churn. Our channel checks and documents
from SEZ Board suggest some of DLF's tenants, such as Accenture, are
contemplating a move to other properties, which can raise vacancies over
Gearing to decline, however, near-term earnings at risk. We assume
coverage of DLF with an UNDEPERFORM rating and a target price of
Rs167 (from Rs210) (downside of 31%) based on 1x FY13E P/B (FY13E
ROE of 6.1%). While DLF can meet near-term debt obligations through asset
sales, we believe near-term earnings remain at risk. We would wait for more
comfort in cash flow improvement before turning positive in the current
environment. Key risks to our target price include faster monetisation of its
non-core assets, higher volume growth, and resolution to pending litigations
in some of its assets.
Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.
Nothing in this article is, or should be construed as, investment advice.


Prasanth KS
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