Stock market Result Update on DLF for 1QFY2012

Stock market Result Update on DLF for 1QFY2012 with a Neutral recommendation.

DLF’s 1QFY2012 results were below our expectations. The company’s revenue increased by 20.5% yoy to `2,446cr (`2,029cr). OPM came in at 45.4%, down 288bp yoy, marginally below our expectation of 45.8%. PAT declined by 12.8% yoy to `358cr (`411cr), well below our expectation of `488cr.

Earnings below expectation: DLF reported 20.5% yoy growth in its revenue to `2,446cr. Leasing volume dipped during the quarter to 0.73mn sq. ft. compared to 1.4mn sq. ft. in 4QFY2011 and 0.98 mn sq. ft. in 1QFY2011. The company booked 2.2mn sq. ft. compared to 3.8mn sq. ft. in 4QFY2011 and 1.9mn sq. ft. in 1QFY2011. OPM came in at 45.4%, down 288bp yoy, on account of cost escalation and inability to pass on the same. However, operating profit grew by 13.4% yoy to `1,111cr because of higher revenue. Interest cost grew by 27.9% yoy (up 8.9% qoq) to `496cr due to increased leverage and lower capitalisation of interest on the back of project completion. Consequently, reported PAT came in at `358cr, down by 12.8% yoy (up by 4.0% qoq), below our estimates (`488cr). The company monetised `165cr of non-core assets during the quarter.

Outlook and valuation: DLF is optimistic on selling ~12mn sq. ft. in FY2012. The company plans to change its mix by selling more plotted land during the year. However, there is a risk to the company’s guidance, considering the delay in approvals and slowdown in the recent months on the back of interest rate hike. We expect DLF to book ~12mn sq. ft. in FY2012 and expect flat growth in volumes in FY2013E, considering the weaker macro environment. Further, DLF lacks near-term triggers, given the kind of muted visibility on debt reduction, though the company plans to divest `6,000cr–7,000cr in 2–3 years to reduce debt. Hence, we recommend Neutral on the stock.