We reiterate ?buy? on DLF with a target price of R300 per share. With our valuation of R104 per share for DLF?s rental asset portfolio (23.8 million sqft), we believe the stock price significantly undervalues its development business and prime land reserves (~332 msf, 90% fully paid) ascribing R61 per share versus our fair value of R196 per share.
Though H1FY14 earnings and pre-sales will likely be weak due to tough macro condition amid increased uncertainty on rate cuts, with the stock down 30% in three months, trading at trough valuations of 64% discount to NAV, 1.1x P/BV, we believe concerns are largely priced in and foresee DLF as a compelling asset play.
With Aman Resorts? sale closure (~R1,600 crore) still taking longer and expected to be completed over next two months (versus June 30, 2013), debt reduction has been slow.
However, we expect recent capital raised (R1,800 crore) and some wind asset closures (~R800 crore) to lower debt from R21,700 crore to R19,000 crore by September 2013 and further to R17,000 crore by March 2014. Our discussion with the management suggests that the company is working towards achieving R6,000 crore sales target (versus R3,800 crore in FY13), legal issues on ?Crest? launch have been resolved, and other luxury project launch in Gurgaon will be likely by Q3FY14. We see pick-up in pre-sales, execution improving operational cash flows in H2FY14 as key drivers.