November 1, 2013

COMPANY RESULTS

REPORT REVIEW
Analyst Hansraj Singh, CFA +91-22-4322 1368 hansraj.singh@idbicapital.com

DLF Ltd.
Subvention receipts lead to better operating cash flow

HOLD

Result Highlights
Mixed operational performance: New sales at Rs7.3 bn; net leasing at 0.61 msf
DevCo new sales was below our estimate at Rs7.3 bn (Rs31.6 bn in H1FY13), largely on account of lower than expected pre-sales in New Gurgaon. The management expects to achieve sales of Rs15-17bn in New Gurgaon in H2FY14 (led by 2 new launches) and has maintained its FY14 new sales guidance at Rs60 bn. During the quarter, DLF launched Camelias project in Phase V, which achieved a pre-sales of ~Rs2.5 bn. Leasing was strong at 0.61msf, taking the total area leased in H1FY14 to 1 msf (1.1 msf in FY13).

Nifty: 6,299; Sensex: 21,165

CMP Target Price Potential Upside/Downside Key Stock Data Sector Realty Bloomberg / Reuters DLFU IN / DLF.BO Shares o/s (mn) 1,779 Market cap. (Rs mn) 2,70,408 Market cap. (US$ mn) 4,397 3-m daily average vol. 14,89,370 Price Performance 52-week high/low -1m Absolute (%) 18 Rel to Sensex (%) 9 Shareholding Pattern (%) Promoters FIIs/NRIs/OCBs/GDR MFs/Banks/FIs Non Promoter Corporate Public & Others Relative to Sensex
160 140 120 100 80 60 40 Jan-13 Jun-13 Nov-12 Dec-12 Feb-13 Mar-13 Jul-13 Aug-13 May-13 Sep-13 Oct-12 Apr-13 Oct-13

Rs152 Rs170 +12%

Adjusted PAT significantly below estimate at Rs204 mn

Revenue was 8% below estimate at Rs19.6 bn (-16% QoQ / -11% YoY). However, due to lower than expected OPM of 30.4% (39.6%/48.6% in Q1FY14/Q2FY13), EBITDA was 30% below our estimate at Rs5.9 bn. The management expects OPM to return to 45-50% level once the Phase V projects and Noida Mall start contributing to the revenues. Adj. PAT was significantly below estimate at Rs204 mn due to the EBITDA miss and higher tax rate of 51%. Interest expense was up 3% QoQ to Rs6.1 bn.

CFO turns positive on receipt of ~Rs5 bn from interest subvention scheme

Due to one-time receipt of Rs5 bn from interest subvention scheme of Crest project, cash flow from operations (CFO) turned positive to Rs7.1 bn (negative Rs4.3 bn in Q1FY14). Also, the company received Rs6.6 bn from sale of non-core assets (wind mill and insurance business). Consequently, net debt declined by Rs6.9 bn QoQ decline to Rs198.9 bn. The management is currently working on a divestment pipeline of Rs30 bn including Aman Resort, and believes it should be able to meet the net debt target of Rs175 bn by FY14-end even if they are not able to close the Aman deal.

Rs289/120 -3m -12m 1 (25) (8) (40)

Maintain HOLD; TP stays at Rs170

We believe DLF will continue to disappoint on the debt reduction front as collections (and therefore 75.0 19.8 0.3 0.9 4.0 the operational cash flow) is unlikely to improve significantly in the near term. Consequently, a large portion of cash flows received from sale of non-core assets will be utilized towards meeting the negative operating cash flow (management expects the company to become CFO positive from Q3FY14 onwards). We maintain our HOLD rating on DLF; TP stays at Rs170.

Table: Financial snapshot

Year FY12 FY13 FY14E FY15E Revenue EBITDA EBITDA (%) Adj. PAT EPS (Rs) 96,294 77,728 73,144 84,680 39,038 26,262 31,818 36,836 40.5 33.8 43.5 43.5 12,008 7,119 6,175 10,044 7.1 4.2 3.5 5.6 21.5 36.2 43.8 26.9 13.2 19.4 15.4 13.2 7.0 6.6 4.7 2.7

(Rs mn)
P/E (x) EV/EBITDA (x) RoE (%) RoCE (%) 4.5 4.6 4.6 2.9

DLF

Sensex

Source: Company; IDBI Capital Research

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Q2FY14 Result Review DLF Ltd.

Table: Quarterly and annual performance

Year-end: March Revenue Operating expenditure EBDITA EBDITA margin (%) Depreciation Other income Interest Exceptional items PBT Tax Tax rate PAT Minority interest Share of profit/(loss) in associates Prior period adjustments (net) Net profit Adj. Net profit Net profit margin (%)
Source: Company

(Rs mn)
Q1FY14 23,141 13,985 9,156 39.6 1,782 1,391 5,914 58 2,909 913 31.4 1,996 (245) 73 (12) 1,812 1,754 7.8 Q2FY14 19,561 13,613 5,948 30.4 1,660 2,685 6,091 797 1,680 855 50.9 825 127 10 39 1,001 204 5.1 (58.7) (151.8) (86.0) (410.5) (44.8) (88.4) % Chg QoQ (15.5) (2.7) (35.0) (6.9) 93.0 3.0 (42.3) (6.4) Q2FY13 21,977 11,307 10,670 48.6 1,786 1,311 6,226 0 3,970 1,137 28.6 2,833 74 36 (15) 2,928 2,928 13.3 (70.9) 71.2 (71.7) (356.7) (65.8) (93.0) (7.1) 104.8 (2.2) (57.7) (24.8) % Chg YoY (11.0) 20.4 (44.3)

Table: Actual v/s estimates

Year-end: March Revenue EBITDA EBDITA margin (%) Adj. Profit
Source: Company; IDBI Capital Research

(Rs mn)
Q2FY14 19,561 5,948 30.4 204 Q2FY14E 21,300 8,520 40.0 1,284 (84.1) % Variance (8.2) (30.2)

Table: NAV and target price

Rs mn Residential, Retail and commercial sales Market value of land Value of Rental assets GAV Less: Net Debt NAV
Source: Company; IDBI Capital Research

Rs/share 109 116 56 280 (110) 170

Comments Valued at Rs1,000 psf less balance payment Rental portfolio of 24 msf; valued at 11% cap rate

1,93,723 2,06,169 98,942 4,98,834 (1,95,951) 3,02,883

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Q2FY14 Result Review DLF Ltd.

Figure: Sales booking of 0.91 msf (Rs7.3 bn) and net leasing of 0.61 msf in Q2FY14
8.00 1.80

7.00
6.00 5.00
(msf)

1.60
1.40 1.20

4.00
3.00

1.00
0.80 0.60

(msf)

2.00
1.00 0.00

0.40
0.20 0.00

Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14
Devco sales (LHS)
Source: Company

Net leasing (RHS)

Figure: Net debt down by Rs6.9 bn QoQ to Rs198.9 bn in Q2FY14 (Rs bn)
300.0
250.0 200.0 216.8 224.3 226.4 227.6

242.7

237.8

235.5

228.3

232.2

214.1

217.3

205.7

198.9

150.0
100.0 50.0

0.0 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14
Source: Company

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Q2FY14 Result Review DLF Ltd.

Financial Summary
Profit & Loss Account
Year-end: March Net sales Growth (%) Operating expenses EBITDA Growth (%) Depreciation EBIT Interest paid Other income Pre-tax profit Tax Effective tax rate (%) Net profit Adjusted net profit Growth (%) Shares o/s (mn nos) FY12 96,294 0.7 (57,256) 39,038 4.0 (6,883) 32,155 (22,465) 5,785 15,475 (3,694) 23.9 11,781 12,008 (26.8) 1,697 FY13 77,728 (19.3) (51,466) 26,262 -32.7 (7,962) 18,300 (23,140) 12,899 8,058 (1,251) 15.5 6,807 7,119 (40.7) 1,697 FY14E 73,144 (5.9) (41,326) 31,818 21.2 (6,815) 25,003 (21,501) 4,750 8,252 (1,672) 20.3 6,580 6,175 (13.3) 1,779

(Rs mn)
FY15E 84,680 15.8 (47,844) 36,836 15.8 (6,425) 30,411 (22,001) 4,750 13,160 (2,666) 20.3 10,494 10,044 62.6 1,779

Cash Flow Statement

Year-end: March Profit after tax Depreciation Chg in working capital Other operating activities Cash flow from operations (a) Capital expenditure Chg in investments Other investing activities Cash flow from investing (b) Equity raised/(repaid) Pref capital raised/(repaid) Debt raised/(repaid) Dividend (incl. tax) Other financing activities Cash flow from financing (c) Net chg in cash (a+b+c) FY12 12,008 6,883 (2,410) (2,172) (1,310) (3,482) 10,757 (4,806) 5,951 FY13 (1,340) 7,962 7,898 (2,069) 5,829 (5,287) FY14E 6,175 6,815 (9,356) 29,500 29,500 18,630 (6,096) (322)

(Rs mn)
FY15E 10,044 6,425 1,629 8,500 8,500 5,000 (6,706) (1,706) 8,423

(15,987) (17,453) (22,346) (14,839) 494 (10,830)

(2,650) (33,000)

(7,937) (20,466)

2,963 (12,938)

Balance Sheet
Year-end: March Net fixed assets Investments Other non-curr assets Current assets Inventories Sundry Debtors Cash and Bank Loans and advances Total assets Shareholders funds Share capital Reserves & surplus Total Debt Curr Liab & prov Current liabilities Provisions Total liabilities Total equity & liabilities Book Value (Rs)
Source: Company; IDBI Capital Research

(Rs mn)
FY12 293,316 11,268 3,349 325,961 161,756 19,100 15,062 51,741 633,894 254,366 3,395 250,970 250,660 114,700 106,669 8,032 379,529 633,894 144 FY13 276,829 13,337 6,563 349,538 176,455 17,393 18,441 53,304 646,267 257,283 3,395 253,888 248,010 126,288 118,961 7,327 388,984 646,267 144 FY14E 240,513 13,337 6,563 369,646 191,455 16,823 18,119 55,304 630,060 275,992 4,205 271,787 215,010 123,835 117,044 6,791 354,068 630,060 150 FY15E 225,588 13,337 6,563 401,722 206,455 19,476 26,543 57,304 647,211 279,329 4,205 275,124 220,010 133,328 125,858 7,470 367,882 647,211 152

Financial Ratios
Year-end: March Adj. EPS (Rs) Adj. EPS growth (%) EBITDA margin (%) Pre-tax margin (%) ROE (%) ROCE (%) Turnover & Leverage ratios (x) Asset turnover (x) Leverage factor (x) Net margin (%) Net Debt / Equity (x) Working Capital & Liquidity ratios Inventory days Receivable days Payable days FY12 7.1 (26.8) 40.5 16.1 7.0 4.5 0.2 2.5 12.5 0.9 613 72 165 FY13 4.2 (40.7) 33.8 10.4 6.6 4.6 0.1 2.5 9.2 0.9 829 82 191 FY14E 3.5 (17.3) 43.5 11.3 4.7 4.6 0.1 2.4 8.4 0.7 955 84 190 FY15E 5.6 62.6 43.5 15.5 2.7 2.9 0.1 2.3 11.9 0.7 890 84 193

Valuation
Year-end: March PER (x) Price / Book value (x) PCE (x) EV / Net sales (x) EV / EBITDA (x) Dividend Yield (%) FY12 21.5 1.0 13.7 5.4 13.2 1.6 FY13 36.2 1.0 17.1 6.6 19.4 1.8 FY14E 43.8 1.0 20.8 6.7 15.4 1.9 FY15E 26.9 1.0 16.4 5.7 13.2 2.1

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Q2FY14 Result Review DLF Ltd.

Notes

Sonam H. Udasi Head Research Dealing

(91-22) 4322 1375 (91-22) 6637 1150

sonam.udasi@idbicapital.com dealing@idbicapital.com

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