DLF land parcel cancellation draws mixed response

Sep 05 2014, 04:41 IST
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SummaryEven as the DLF scrip came under selling pressure on Thursday, ending 8.6% lower on BSE...

The Punjab and Haryana HC decision on Wednesday to cancel the 350-acre land allotment in Wazirabad, Gurgaon, to DLF has drawn mixed reactions from analysts.

Even as the DLF scrip came under selling pressure on Thursday, ending 8.6% lower on BSE, JPMorgan’s analysts see the ruling as a ‘blessing' in disguise’, citing the refund to be received by the company post-cancellation as cash positive.

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Meanwhile, IDFC Securities downgraded the stock from ‘outperform’ to ‘neutral’ and cut the target from Rs 244 to Rs 201. Edelweiss analysts see a Rs 2,790 crore or Rs 16/share cut in the company’s valuations after the cancellation.

According to JP Morgan, since the land acquisition process has been upheld and global bids re-invited, DLF will see its payment of Rs 1,050 crore refunded. In addition, their annuity land purchase will drop by Rs 400 crore for this parcel. This should lead to net savings of Rs 550 crore. Along with asset sales of Rs 1,500 crore for the year, after the cancellation the total asset sales will rise to Rs 2,500 crore, helping the company to stabilise its debt levels.

According to the company's presentation, the net debt on company's books stood at Rs 19,064 crore at the end of June quarter, 3% up q-o-q.

JP Morgan said that while the 350-acre land parcel was not part of their valuation, the cancellation will not have a major impact on the company’s earnings. “A discounted cash flow (DCF) valuation would have assumed the land coming into development from 2030,” the analysts said.

The US-based financial services firm holds target price of Rs 210 based on its sum-of-the-part valuation; 25% higher than the latest closing price of Rs 25.5.

Analysts at Edelweiss see a negative impact on the real estate developer’s earnings. “Cancellation of allotment of the land parcel is a negative for the stock, both in terms of valuations and sentiment. We estimate impact on valuations to be approximately Rs 2,800 crore or Rs 16/share on our current NAV/TP of Rs 246/share,” Edelweiss said in a report.

“We estimate development potential of the 350-acre land parcel to be approximately 10 million square feet. The land parcel is close to DLF Magnolias in DLF phase V,” Edelweiss added.

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