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Citi initiates BUY on DLF

September 10, 2007

DLF remains committed to an aggressive execution schedule – seeks to deliver 16m and 23m sq ft of completed assets over the current and next year, with ~50m sq ft under construction. DLF management dismissed perceptions that it has low cost land bank. It clarified that about 40m sq ft (7% of land bank) is historic with an average cost of Rs275psf – the rest, about 575m sq ft, has been acquired in the last 3-4 years; effective cost slightly higher at Rs350psf.

DLF sees itself well leveraged to the strong commercial/retail asset environment; 50-55% of its assets are in this space, it has over 12m sq ft in preleased commitments on its books, with 42m sq ft of space under execution. DLF has an aggressive launch schedule in the mid-income housing space, spread across various cities in the country.

Target price of Rs.725 is based on a 25% premium to an estimated core NAV of Rs530, and Rs62 for other asset holdings and new JV businesses (Rs45/share for the existing 4.6m sq.ft leased assets and 7.2m sq.ft plot, and Rs17/share for DLF’s share in construction and hotel JVs. DLF is a medium Risk BUY.

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