DLF Gurgaon land parcel cancellation draws mixed response from analysts

Sep 04 2014, 20:00 IST
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IDFC Securities downgraded the stock from ‘outperform’ to ‘neutral’ and cut the target price from Rs 244 to Rs 201. (Reuters) IDFC Securities downgraded the stock from ‘outperform’ to ‘neutral’ and cut the target price from Rs 244 to Rs 201. (Reuters)
SummaryJP Morgan's analysts see ruling against DLF as a 'blessing in disguise'.
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The Punjab and Haryana High Court’s decision to cancel the 350-acre land allotment in Wazirabad, Gurgaon, to DLF Ltd on Wednesday has drawn mixed reactions from the analysts.

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

Meanwhile, IDFC Securities downgraded the stock from ‘outperform’ to ‘neutral’ and cut the target price from Rs 244 to Rs 201. Analysts at Edelweiss see a Rs 2,790 crore or Rs 16/share cut in the company’s valuations post 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 and should lead to a net savings of Rs 550 crore. Coupled with asset sales of Rs 1,500 crore for the year, post 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% higher from the previous quarter.

JP Morgan further added that while the 350-acre land parcel was not part of their valuations, 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.

Meanwhile, 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 as well as sentimentally. 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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