Resilient in tough times
DLF’s Q4FY20performancewas a mixed bag across segments with Rs3.3bn of net sales bookings in the development business (owing to cancellations in Camellias) and Rs7.6bn of rental income in DCCDL, the rental arm(flat QoQ). While DLF’s net debt increased marginally by Rs4.0bn in Q4FY20 to Rs52.7bn on account of interim dividendpayment of Rs3.0bn,DLF is comfortably positionedwith Rs25bn of cash reservesand low net D/E of 0.2x. At DCCDL level, the company continues to post collections of over 90% in offices while mall collections have seen a short-term impact on account of temporary closures. We retainour BUYrating with a revised target price ofRs223/share (earlier Rs250) aswefactor in higher cap rate of 9% vs. 8% earlier in rental assetsand slower monetisation of high value inventory in Phase V, Gurugramprojects.
* Sales momentum weak,shift in sales strategy to enable faster monetisation: Q4FY20 saw DLF clocking gross sales bookings of Rs7.3bn. However, cancellation of20units in the super-luxury Camellias project in Phase V, Gurugram led to net sales bookings of Rs3.3bn for the quarterand Rs24.9bn in FY20 vs. guidance of Rs27bn. In a departure from itsearlier strategy of selling inventoryupon completion, DLF now intends to launch 7msf of independent floors and DLF Midtown, Delhi (JV with GIC) for sale in H2FY21 with some construction progress to mitigate the slower sales in Camelliaswhich accounts forRs48bn of total unsold inventory of Rs91bn.
* Rental business collections steady:In Q4FY20, DCCDL achieved rental income of Rs7.6bn (flat QoQ) and FY20rental income of Rs30bn. Offices, which contribute 85% of the rental income continues to see strong collections of over 90% in April 2020 and ~80% in May 2020 (expected to cross 90% in June 2020). In the malls businesswhich contributes the balance 15% of rentals, DLF has deferred rental collections and will rework rentals when the malls reopen from June 2020 onwards in NCR. The company expects the Cyber Park, Gurugram (2.5msf) and Chennai IT SEZ (0.8msf) to see rentals commencing in Q2FY21-Q3FY21E. DCCDL also continueswork on Down Town, Chennai (2msf) and Down Town, Gurugram (3msf).
* DLF’snet debt inches up QoQ, liquidity position comfortable: DLF’s net debt (ex-DCCDL)increased by Rs4.0bn QoQ to Rs52.7bnon account of cash deficit of Rs1.0bn and interim dividend payment of Rs3.0bn in Q4FY20.DLF currentlyhas Rs25bn of cash reserves against Rs13bn of debt maturity in FY21 which the companyis looking to refinance. The company is targeting to keep the net debt levels flat in FY21E and continuesto pursue sale oflandandexiting various JVs
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