DLF stock: Street will focus on deleveraging process, sale of inventory

Realty major DLF, which is in the process of restructuring its operations, has placed a winning bid of Rs 15 billion for an 11.8-acre land parcel located next to Cyber City in Gurugram.

Factoring in other costs such as transit-oriented development and stamp duty, the company will incur nearly Rs 18 billion for a saleable area of 2.5 million square feet.

ICICI Securities’s Adhidhev Chattopadhyay said the land acquisition was value-accretive, given the expected realisation of Rs 20,000 per square feet, the development cost of Rs 12,000 per square feet, and operating profit margins of 40-50 per cent.

The company is expected to fund this project, which will cost (including construction) Rs 30 billion, from sales of its completed inventory worth Rs 150 billion. While this is a commercial or rental project, on the residential side, the company is building the Capital Greens project in Delhi in a 50:50 joint venture with GIC of Singapore.

The Street will focus on the restructuring and deleveraging process of the company. 

The realty major has now added the residential business to its portfolio, while Delhi Cyber City Developers (DCCDL), in which DLF has a 66.66 per cent stake, will house the rent-generating commercial or retail assets. 

Promoters received Rs 105 billion from GIC for a 33.33 per cent stake in DCCDL, of which Rs 90 billion has been infused into DLF (in lieu of warrants and debentures). The rest (Rs 15 billion) is expected to come over the next 18 months. 

Shareholders have also approved an equity offering of 173 million shares through the private placement or qualified institutional placement route over the next few months.

While DLF (residential operations) has net debt of Rs 55 billion, DCCDL has net debt of Rs 161 billion, of which two-third is attributable to DLF. Excluding DCCDL, the company seeks to be debt free by FY19 after equity issuances and receiving balance funds from promoters, expected to be worth Rs 60 billion. According to analysts, a debt-free status should help the company sharpen its focus on residential operations.

While the balance sheet repair is underway, a lot will depend on the speed with which the company is able to offload its inventory in a tough market. 

While the stock is down 18 per cent from its peak earlier this year, analysts are positive on expectations of a gradual recovery and valuations of one time of the firm’s FY19 net asset value.