Religare Capital is bullish on DLF and has recommended buy rating on the stock with a target of Rs 250 in its August 04, 2014 research report.
Q1 PAT improves on margin gains: Adjusted for a one-time loss of Rs 3bn (non-core asset sales), DLF's Q1FY15 PAT of Rs 1.5bn was 27% ahead of our estimates (-36% QoQ) aided by a beat on margins. QoQ, revenue and PAT were weak owing to lower POCM revenue recognition and limited volumes. P&L numbers are expected to remain low till new projects start contributing to revenue by Q4FY15.
Operational numbers still weak: New sales remained weak at 0.38msf though leasing was steady at 0.71msf. Management's commentary worsened, now expecting steady-state volumes to take six quarters to materialise, as the near-term focus remains on execution rather than new launches. This implies softer volumes and hence cash flows through FY16.
Net debt increases slightly on capex/operational cash: Net debt increased by Rs 5bn QoQ to Rs 191bn led by capex and land acquisition costs of Rs 2.4bn combined, along with negative operational cash flow. The company's short-term goal remains to improve the quality and tenure of debt by CMBS and maintain the current levels via asset sales.
Maintain BUY: Protracted volume recovery would weigh on the stock in the near term. However, steady growth in both the rental portfolio and macro climate should mean limited downside from current levels. Maintain BUY with a Sep'15 TP of Rs 250.
"DLF reported weak Q1FY15 volumes of 0.38msf (0.44msf in Q4FY14) and gave a cautious outlook on DevCo sales, as the focus remains on execution and not on new launches till the market improves. Adj. PAT of Rs 1.5bn was 27% better than expected despite lower revenues (Rs 17bn, 17% below) on better POCM margins (43% vs. 30% RCMLe). While sluggish volume recovery would weigh on near-term performance, a steady rental business and improving macro outlook would mean limited downside from current levels. Maintain BUY," says Religare Capital research report.
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