We retain our ?add? rating on DLF but alter our target price (TP) to Rs 235 (earlier R255) to reflect select changes in the land bank in Q2FY14 and sales estimates. The management guidance indicates positive cash from operations in H2FY14, but debt reduction plans depend on asset monetisation. High operating costs and a weak macro environment are key risks to balance sheet recovery.
DLF recorded operating revenue of Rs 1,950 crore in Q2FY14, again most of it contributed by Phase-5 recognition. Gross margins from projects were maintained but operating margins dropped on higher other expenditure. As per the management, recovery from asset sales was Rs 530 crore in Q2FY14.
The management continues to hold huge cash balances to address liquidity issues until March 2014. DLF sold 0.9 mn sq. ft during the quarter R730 crore at blended average realizations of R8,000 per sqft. Sales were low due to a lack of new launches. Gurgaon contributed 33% of sales volume and 62% of sales value in Q2. DLF achieved half its FY14 guidance in H1FY14 with higher realisations in Phase-5, Gurgaon sales. The management has retained its R6,000 crore sales guidance and R17,500 crore net debt target by March 2014.
– Kotak Institutional Equities
