While the sale of Aman Resorts chain for $300 million or Rs 1,650 crore is a positive and will help pare DLF’s debt mountain, investors were lukewarm to the announcement and the stock ended flat over the last two trading sessions. While the markets had discounted part of the deal, the final price was slightly less than the earlier expectations of Rs 1,800 crore.
Closure of the deal over the next couple of months as well as other asset sales in the recent past will help the company raise about Rs 4,750 crore from divestments in line with its guidance of fetching about Rs 5,000 crore from the sale of its non-core assets. While the company has a debt of Rs 21,200 crore currently (down from Rs 23,500 crore at the start of this fiscal), the Aman Resorts deal should bring its debt down to about Rs 19,500 crore. If DLF manages to dispose off the windmill assets which is expected to generate about Rs 900 crore, the company would be able to bring down its net debt to about Rs 18,500 crore.
Its debt to equity ratio which is currently at 0.85 (at the end of November post the NTC mill land sale) is expected to come down to 0.75 by the end of the fiscal and further to 0.62 at the end of FY14. Says Param Desai of Nirmal Bang, “We expect net D/E ratio to decline further to 0.7 in FY13 and 0.6 in FY14 led by non-core asset sales (NTC land sale, Aman Resorts and wind business) and improvement in operating cash flow (launch of high-value new projects)." What could bring this down further is dilution of equity to meet Sebi guidelines with the promoters currently holding 78%. The management is looking to raise about Rs 1,500 crore from a fresh issue (FPO/IPP) and is waiting for the deleveraging process to get over before hitting the equity markets.
While reduction in debt, which has been the key overhang resulting in the underperformance of the stock, is happening at a gradual pace, the Street will be keenly looking at improvement in cash flows as well as further fund raising efforts. Says Arun Aggarwal of Religare Institutional Research, “We expect projects worth Rs 11,000 crore to be announced over the next few months and pre-sales of Rs 3,500 crore in H2'FY13. This should help improve the volume momentum going forward. Further, 30% of the ongoing projects are scheduled to be completed in the next 2-3 quarters.”
The key to achieving these numbers will be the launch of 5 million square feet in Prime Phase V land in Gurgaon. Say Saurabh Kumar and Gunjan Prithyani of J P Morgan, "If the launch of its luxury project in Gurgaon takes off it could lead to a turnaround in its operations. DLF is targeting presales of Rs 10,000 crore over the next 4-5 years from this project with Ebidta of Rs 1,500 crore a year. “Along with ongoing asset sales program, we believe it has the potential to return the company to FCF (free cash flow) positive zone,” they add.
Given the recent deleveraging moves and likely improvement in cash flows, most analysts have a 'buy' call on the stock with targets in the range of Rs 260 - Rs285.