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DLF: Investors won’t be back sans revival

Despite significant debt reduction through an asset sale programme and launch of a major project, the company’s stock has corrected by 25% in the last three months.

, ET Bureau|
Updated: Jun 04, 2013, 04.33 AM IST
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Despite significant debt reduction through an asset sale programme and launch of a major project, the company’s stock has corrected by 25% in the last three months.
Despite significant debt reduction through an asset sale programme and launch of a major project, the company’s stock has corrected by 25% in the last three months.
DLF may have pared its debt through sale of assets, but its operations continue to remain weak.

Despite significant debt reduction through an asset sale programme and launch of a major project, the company’s stock has corrected by 25% in the last three months.

Going ahead, there are no significant upside triggers. Although most brokerage firms have re-iterated a buy on DLF, investors are unlikely to be take the bait, unless there is a visible revival in the company’s operations. In FY13, the company’ interest outgo was Rs 3,200 crore, 8% higher YoY and its cash flows from operations was only Rs 2,000 crore, 20% down YoY. The cash received from sale of assets helped bridge the deficit.

The free cash flow generated by the company in the latest quarter was close to Rs 540 crore, which led to net debt increasing marginally to Rs 22,700, despite divestment worth Rs 3,160 crore in FY13.

Also, its pre-sales was 2 million square feet, in the latest quarter compared with 2.3 million square feet in the previous quarter and 6.8 million square feet a year ago. Delay in approvals and launches due to weak demand were the primary reasons for this. For the entire fiscal, pre-sales declined 28%. The company will be speeding up project launches this fiscal. It is planning to sell 7-8 million square feet this year, targeting a sales value of Rs 6,000 crore. This would be around 10% lower YoY. For the company to maintain its operating profit YoY, it will have to recognise an operating margin of at least 40-45% against 33% in FY13. The successful launch of the ultra luxury project — Camellia in the second or third quarter would be critical.

Lower off-take or price realisation could again lead to a decline in growth in operating profits. In FY13, its operating profit declined 33%. With the near-term triggers and the divestment of noncore assets almost over, the upside in the company’s stock price will be capped.
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