Buy DLF shares on expectations of better H2: Deutsche Bank

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SummaryDLF reported a muted Q2FY14, primarily due to newer projects not hitting the revenue recognition threshold.

DLF reported a muted Q2FY14, primarily due to newer projects not hitting the revenue recognition threshold. Revenue, Ebitda & PAT were 12%,35% and 46% below our estimates. We cut FY14e/FY15e EPS

by 14%/10%.

DLF maintains that P&L will remain subdued until new projects, such as Crest and Ultima, hit revenue recognition threshold. Sales booking at 0.9 msf was subdued, but we are not too concerned as Q1 witnessed strong booking and H2 is generally stronger than H1.

Net leasing was very robust at 0.61 msf (highest in past nine quarters). Reiterate ‘buy’ on an attractive risk-reward with a R220 target price. Net debt/equity has now reached 71% (lowest in the past 19 quarters) as adjusted net debt declined by R853 crore q-o-q.

We expect the following key catalysts to drive DLF’s stock price in near midterm: Commissioning of Rapid Metro in DLF Cyber City; launch of Ultima’s Phase–II in New Gurgaon; Amanresorts stake sale and launch of pilot CMBS.

The DLF stock has underperformed BSE Realty Index by 7% and Sensex by 45% over past six months. This seems overdone and should normalise on balance sheet improvement and a better H2.

Deutsche

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