Kotak Securities has initiated coverage on the prospects of India’s largest Realty player – DLF.
DLF, with 615 mn sq. ft of land acquired or under acquisition at low cost, is best positioned to participate in the strong growth we expect in the Indian real estate sector. Concurrently, DLF’s extensive experience in the commercial and retail sectors (it has developed 10 mn sq.ft) should help accelerate its aggressive plans for developing office space, shopping malls, SEZs and hotels.
Kotak estimates March 2009 NAV for DLF at Rs670/share. DLF’s net income is expected to increase to Rs112 bn in FY2010E from Rs19 bn in FY2007 driven by increase in revenues to Rs221 bn from Rs39 bn. More specifically, (a) DLF is to develop and sell 31 mn sq. ft of developed in FY2010E, up from 8 mn sq. ft in FY2007; (b) DLF to have 26 mn sq. ft of assets under lease by FY2010; and (c) DLF’s new initiatives (SEZs, hotels) to start contributing to revenues over the next few years.
DLF’s fully diluted EPS is expected to be Rs 37.5 for FY 08 and Rs 55 for FY 09. Kotak has set a price target of Rs 710, 5% premium to its NAV.
One should be very careful while investing in Realty stocks because the sector is overheated today and Indian Realty Stocks are the most expensive in the world according to S&P report. Further, FIIs have sold the following Realty stocks – DLF, Mahindra Gesco, Atlanta and Unity Infra.
Update from Citigroup:
Citigroup research has also initiated coverage on DLF with a BUY rating and a price target of Rs 725.
DLF is India’s largest developer with an emerging pan-India presence. We initiate with a Buy/Medium Risk rating and a Rs725 target price, based on a 25% premium to an estimated core NAV of Rs530 and ascribing Rs62 for other asset holdings and new JV businesses. The premium is based on DLF’s sizeable land bank; higher leverage to office, IT Parks/IT SEZs and retail mall assets.
DLF’s strengths are 1] Focus on scale with a portfolio mix of ~615m sq.ft spread across top-tier cities; 2] strong cash reserves in this liquidity strained environment, 3] a de-risked business model, with JVs in construction and hotels aiding growth, and 4] a robust earnings CAGR of 81% for FY07-10E.