Motilal Oswal is bullish on DLF and has recommended buy rating on the stock with a target of Rs 239, in its May 30, 2014 report.
Revenue in line, EBITDA margin disappoints once again; higher other income, tax reversals boost PAT: DLF has reported 4QFY14 EBITDA at INR3.6b (v/s est of INR6.4b) on the back of sharp decline in margin to 18% (v/s 30% IN 3QFY14). While cost escalations are the likely attributable reasons, we await clarity on the same from management. Revenue was in line at INR18.7b (-12% YoY), while PAT stood at INR2.2b (ahead of estimate of INR1.9b) on the back of higher other income and tax reversals.
Lowest ever quarter presales, leasing beat guidance: 4QFY14 presales was at lowest ever at 0.4msf (INR3.1b) v/s 0.6msf (INR6b) in 3QFY14. Management guidance was cautious for next couple of quarters, with normalcy reviving only in FY16. Annuity vertical performed better with 0.5msf of leasing (v/s 0.11msf in 3Q), taking total FY14 net leasing at 1.7msf (v/s guidance of 1.5msf and 1.2msf in FY12). 4Q annuity income stood at INR4.95b (v/s INR4.75b in 3Q and INR19.5b in FY14).
FCFE weakens further; net debt up INR16.3b QoQ v/s divestment of INR29.45b: Weak demand and lack of fresh launch has resulted in deterioration in core operating cash flow. We calculate core FCFE to remain negative at INR12.7b (pre- dividend ) v/s negative INR5.4b in 3Q and +INR1.5b in 2QFY14. DLF received ~INR29.45b of divestment proceeds from Aman transaction and DDA refund, which offset operational shortfall and resulted into net debt reduction of INR16.3b to INR195b (0.7x), unadjusted for JV partners' stakes.
Other updates: (a) additional ITA claim of INR2.7b in 4QFY14, (b) additional divestment of INR2.5b in 1QFY15, (c) FY15 annuity income guidance of INR21b.
Valuation and views: While concerns over gearing have moderated, weakness in operations remains a risk for sustenance of B/S strength. The stock trades at 1.3x FY16 BV and 36x FY16 EPS. Asset based valuation keeps us Buy on the stock with TP of INR239, albeit (a) delay in revival of operations, and (b) unfavorable verdicts on CCI penalty, tax litigations etc remain overhangs.
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