Despite headwinds, analysts remain bullish on DLF

Dragged down by DLF, the S&P BSE Realty index - the top loser among sectoral indices on Thursday - slipped nearly 5% in intra-day deals

The DLF stock fell 8.6 per cent to close at Rs 167.3 on the BSE on Thursday, a day after the Punjab and Haryana High Court set aside the Haryana government’s decision to allot 350 acres in Wazirabad, Gurgaon, to the company in 2010.

The land is close to DLF Magnolias, a prime residential development in DLF Phase-V. A division Bench of the court directed the Haryana government to auction the land after inviting international bids within a month. DLF will be able to participate in the auction.

This is the second blow to the company in as many weeks. On August 27, the Supreme Court had directed it to deposit Rs 630 crore, quashing the company’s request to stay a Competition Commission of India order imposing a penalty for unfair trade practices. Pulled down by DLF, the BSE realty index slipped about five per cent in intra-day deals on Thursday, the most among sectoral indices. Among other real estate stocks, Unitech, Oberoi Realty, DB Realty, Indiabulls Real Estate, Anant Raj Industries, HDIL and Godrej Properties lost 3.5-7.2 per cent in intra-day deals.

The land in Wazirabad, Gurgaon, was auctioned by the Haryana government through the international bidding route. There were three bidders — DLF, Unitech and ITC. The bids of Unitech and ITC were rejected during the technical evaluation, reports suggest. DLF has already paid Rs 1,000 crore for the land; a pending sum was to be paid, contingent to securing the development licence and developing of the agricultural land for residential purpose. Subsequently, the land allotment ran into rough weather, with farmers challenging the land acquisition by the government and its transfer to DLF, reports indicated.

The court upheld the land acquisition by the state government but paved the way for its re-auction.

Analysts estimate the value of land to be Rs 8 crore/acre, valuing the entire plot at about Rs 3,000 crore.

While analysts agree the recent developments were setbacks to the company, they say DLF is likely to appeal against the Punjab and Haryana High Court order. “Cancellation of allotment of the land parcel is a negative for the stock, both in terms of valuation, as well as sentiment. We, however, believe the company will appeal against the verdict in the Supreme Court. The estimate impact on valuations is likely to be Rs 16 a share on our current target price of Rs 246 a share. We currently have a ‘Buy/sector performer’ recommendation/rating on the stock,” Aashiesh Agarwaal and Akshay Rao of Edelweiss said in a client note dated Wednesday.

Parikshit Kandpal, an analyst tracking the company at Karvy, says it is difficult to predict the outcome of the case, as the matter is sub judice and DLF might contest it in the Supreme Court.

“Purely on a financial basis, we have valued the land at Rs 3,000 crore in our DCF (discounted cash flow) model. Assuming the state government refunds Rs 1,000 crore with interest (8.5 per cent for five years), the valuation hit could be to the extent of Rs 1,500 crore, or Rs 8.2/share. Currently, we have a ‘Buy’ stance on DLF, with an SOTP (sum of the parts)-based target price of Rs 240/share. Our valuation is based on 0.77x our end-FY15 estimated net asset value,” he adds.