India Daily, February 13, 2012
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INDIA DAILY February 13, 2012 India 10-Feb 1-day1-mo 3-mo Sensex 17,749 (0.5) 9.9 3.2 Nifty 5,382 - 10.6 4.1 Contents Global/Regional indices Daily Alerts Dow Jones 12,801 (0.7) 3.1 5.3 Nasdaq Composite 2,904 (0.8) 7.1 8.4 Results FTSE 5,852 (0.7) 3.8 5.5 DLF: Right course but still in rough waters Nikkie 8,963 0.2 5.5 5.3 Hang Seng 20,837 0.3 8.5 8.9 Oil India: Country cousin steals a march KOSPI 2,003 0.5 6.8 7.5 Tata Power: Coal production ramps up, low cost coal gives Mundra hope Value traded – India IDFC: Growth strong, core in line Cash (NSE+BSE) 185 166 70 Reliance Communications: Weak results but do they matter? Derivatives (NSE) 1,371 1,079 1,107 Shriram Transport: A flat quarter Deri. open interest 1,372 1,112 1,260 Reliance Capital: A mixed quarter Eros International: Growing up Forex/money market MTNL: Operational strife continues Change, basis points Puravankara Projects: In-line results, poor sales 10-Feb 1-day 1-mo 3-mo Rs/US$ 49.4 (5) (204) (97) Results, Change in Reco 10yr govt bond, % 8.3 1 (8) (64) Net investment (US$mn) JSW Steel: Reports consolidated loss; stock expensive 9-Feb MTD CYTD FIIs 294 1,810 3,994 Sun TV Network: A rainy quarter; Sun hides behind the clouds MFs (77) (95) (282) Change in Reco Top movers -3mo basis Tata Steel: Negatives out of the way Change, % Best performers 10-Feb 1-day 1-mo 3-mo IndusInd Bank: Limited risks to business; valuations cap returns in the near IVRC IN Equity 56.7 (4.4) 48.0 51.0 term TTMT IN Equity 257.4 0.0 23.3 41.8 WLCO IN Equity 133.6 1.9 20.6 38.7 Sector MMTC IN Equity 875.2 (1.1) (8.0) 36.5 Consumer products: Hale and hearty, for now TGBL IN Equity 119.0 (3.3) 26.3 34.7 Worst performers Economy UNSP IN Equity 670.3 (2.3) 11.8 (19.8) BHEL IN Equity 260.6 (0.5) (2.3) (19.7) Economy: IIP growth likely to be near the bottom ESOIL IN Equity 66.0 (3.1) 6.5 (18.6) MM IN Equity 691.6 (1.5) (0.1) (17.8) NMDC IN Equity 189.2 (0.8) 8.0 (14.2) For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES. REFER TO THE END OF THIS MATERIAL. ADD DLF (DLFU) Property FEBRUARY 13, 2012 RESULT Coverage view: Cautious Right course but still in rough waters. We believe DLF is moving in the right Price (Rs): 231 direction with (1) aggressive asset sale plans and visible intent of sticking to core areas, Target price (Rs): 260 (2) outsourcing of construction once again and (3) a pick-up in deliveries and sales. Key BSE-30: 17,749 negatives include (1) weak revenue recognition, (2) a subdued demand (residential and office space) environment and (3) high D/E of 0.9X. We cut our FY2012E/13E/14E earnings by 19%/19%/15% and maintain ADD rating at a revised target price of Rs260/share (earlier Rs270) factoring delays in execution and revised debt estimates. Company data and valuation summary DLF Stock data Forecasts/Valuations 2012 2013E 2014E QUICK NUMBERS 52-week range (Rs) (high,low)281-173 EPS (Rs) 9.7 12.7 16.9 Market Cap. (Rs bn) 395.9 EPS growth (%) 6.5 31.5 33.1 • Revenues of Rs20.3 Shareholding pattern (%) P/E (X) 23.9 18.2 13.6 bn in 3QFY12 (-18% Promoters 78.6 Sales (Rs bn) 97.5 117.7 155.4 yoy, -20% qoq) FIIs 15.5 Net profits (Rs bn) 16.4 21.6 28.7 MFs 0.1 EBITDA (Rs bn) 41.6 51.1 64.2 • EBITDA of Rs8.2 bn Price performance (%) 1M 3M 12M EV/EBITDA (X) 15.2 12.3 9.5 Absolute 25.0 (1.0) (6.1) ROE (%) 6.1 7.6 9.5 in 3QFY12 (-30% Rel. to BSE-30 13.8 (3.2) (7.6) Div. Yield (%) 1.1 1.3 1.5 yoy and qoq) • Sales of 3.3 mn sq. ft Reported financials disappoint on lower execution versus 1.3 mn sq. ft DLF reported revenues of Rs20.3 bn (-18% yoy, -20% qoq) and PAT of Rs2.6 bn (-45% yoy, -31% in 2QFY12 qoq) due to slowdown in execution (revenue recognition) as the company moved over to third- party contractors from in-house construction which caused associated delays. EBITDA came in at Rs8.2 bn (-30% yoy and qoq) while EBITDA margins dropped by 5.9% qoq and 7.1% yoy to 40.4% due to an increase in construction cost and other expenditure as a proportion of sales (53% versus 48% in 2QFY12 and 47% in 3QFY11). PAT also got impacted by increase in interest costs (average COD is now 12.75% on a debt of Rs250 bn) and lower interest capitalization of 25%. Sales and deliveries have picked up and debt is marginally down qoq DLF sold 3.3 mn sq. ft in 3QFY12 versus 1.3 mn sq. ft in 2QFY12 and 2.5 mn sq. ft in 3QFY11 and the company has guided for a slow and cautious 4QFY12/1QFY13 due to high interest rates. DLF has plans to launch 9.25 mn sq. ft under plots, 6 mn sq. ft under group housing and 0.5 mn sq. ft of commercial space and has indicated that approvals for several micro-markets are already in place. DLF’s area under execution has declined to 45 mn sq. ft from 53 mn sq. ft in 2QFY12 due to handovers of 10.5 mn sq. ft in the quarter. DLF’s handover of projects (both development and rental) in 3QFY12 is higher than total of FY2010 and FY2011 (9.2 mn sq. ft) and is now targeting to deliver >1.5 mn sq. ft in 4QFY12E and >12 mn sq. ft in FY2013E. Asset sales release cash though debt reduction not as much as expected DLF raised Rs12 bn through assets sales in 3QFY12 – (1) Rs7.9 bn from Noida and Pune IT Park, (2) Rs3.4 bn from FSI sales in Gurgaon and (3) Rs0.8 bn from other assets. Net debt, however, has only reduced by Rs4.9 bn as the company utilized (1) Rs4.5 bn in capex and land buying, (2) Rs1.2 bn to purchase Hilton stake in hotel JV and (3) Rs0.8 bn on new launches. DLF is now targeting Rs60 bn of asset sales by end-FY2013E from – (1) Aman Resorts (Rs20 bn), (2) Wind/utilities/miscellaneous (Rs20 bn) and (3) Chennai and Mumbai project disposal including Hindoostan Mills land (Rs35-40 bn). For private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL. DLF Property Revenue impacted due to slowdown in execution Interim results, DLF, March fiscal year-ends (Rs mn) (% change) 3QFY12 3QFY12E 2QFY12 3QFY11 3QFY12E qoq yoy 9HFY12 9HFY11 % change Net sales 20,344 25,505 25,324 24,799 (20) (20) (18) 70,126 68,775 2 Total cost (12,116) (13,805) (13,594) (13,020) (12) (11) (7) (39,059) (37,910) 3 Construction cost (8,103) (9,466) (9,526) (14) (15) (26,991) (27,005) (0) Staff cost (1,379) (1,539) (1,338) (10) 3 (4,374) (4,250) 3 Other expenditure (2,635) (2,589) (2,156) 2 22 (7,694) (6,656) 16 EBITDA 8,227 11,699 11,730 11,780 (30) (30) (30) 31,067 30,865 1 Other income 3,617 511 448 1,143 608 708 216 4,638 3,973 17 Interest costs (6,199) (5,300) (5,263) (4,277) 17 18 45 (16,426) (12,499) 31 Depreciation (1,797) (1,775) (1,753) (1,612) 1 3 11 (5,252) (4,650) 13 Pretax profits 3,848 5,135 5,161 7,034 (25) (25) (45) 14,027 17,688 (21) Tax (1,353) (1,489) (1,475) (2,026) (9) (8) (33) (4,106) (4,439) (7) Net income 2,495 3,646 3,686 5,008 (32) (32) (50) 9,921 13,249 (25) Minority interest 109 0 (284) (57) (385) Share of profit/(loss) in associates (17) (5) (2) 259 725 20 51 (60) Net income before prior period adjustments 2,587 3,646 3,682 4,722 (29) (30) (45) 9,885 12,916 (23) Prior period adjustments (4) 42 (65) (94) 7 35 Reported net income 2,584 3,646 3,724 4,657 (29) (31) (45) 9,891 12,951 (24) Key ratios EBITDA margin (%) 40.4 45.9 46.3 47.5 44.3 44.9 PAT margin (%) 12.7 14.3 14.7 18.8 14.1 18.8 Effective tax rate (%) 35.2 29.0 28.6 28.8 29.3 25.1 Source: Company, Kotak Institutional Equities estimates EBITDA margin declines to 40.4% Quarterly revenues, EBITDA, EBITDA margins and gross margins, DLF, March fiscal year-ends Revenues (Rs bn) EBITDA (Rs bn) EBITDA margins (%) Gross margins (%) 50 80 70 40 60 30 50 40 20 30 20 10 10 0 0 1QFY08 2QFY08 3QFY08 4QFY08 1QFY09 2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 Source: Company, Kotak Institutional Equities KOTAK INSTITUTIONAL EQUITIES RESEARCH 3 Property DLF Operational performance Development for sale.