Slower sales in FY15 reflected in tepid collections, a multi-year low for DLF. Although debt increased, interest expenses were lower y-o-y, reflecting the strong assets of DLF. The GAV (gross asset value) of the annuity business (60% in DCCDL—DLF Cyber City Developers) alone is over Rs 220 bn, as we believe the market is not assigning any value to its development business having a book value of over Rs 180 bn. Events on monetisation and operations, not valuations, will drive stock performance. We maintain Buy rating, retain target price of Rs 170.
* We estimate collections from DLF’s development company business to be around Rs 30 bn in FY15 vs Rs 48 bn in FY14. Buoyant construction expenditure and more build-up area, along with interest and other expenditure, led to DLF losing money from operations. This led to increased debt.
* Although gross debt rose by Rs 21.6 bn in FY15 to nearly Rs 245 bn, interest costs marginally dropped during the year to Rs 31.7 bn. The cost of debt stood at 13.6%.
* Employee costs reduced by almost 40% in FY15, reflecting DLF’s exit from the hospitality business Aman Resorts, and a net reduction in employee count. The employee count has fallen from 4,087 in FY12 to 2,180 in FY15.
* DLF has delivered 27m sq. ft in the past three years and plans to deliver 20m sq. ft in the next 12-15 months. Area under construction has come down from a peak of 55m sq. ft to 36m sq. ft as of June ‘15.
* DLF’s rental business has grown at a CAGR of 27% in the past six years to Rs 21 bn of rentals in FY15. Mall of India’s opening in FY16 will add Rs 2 bn more to rental in FY17. Rental will reach Rs 30 bn by FY18. We expect debt to rise in FY16 as operations stay negative.