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Edelweiss initiates Coverage on DLF

September 22, 2007

Exclusive UpdateEdelweiss has initiated coverage on DLF with a BUY rating and a price target per share of Rs 755 based on NAV model of analysis.

DLF is the leader in the Indian real estate industry in terms of developable area. Its land bank of 13,055 acres translates into 615 mn sq. ft. of saleable area spread across the country.

DLF has entered into tie-ups in related businesses with some of the best names in their respective industries. For its SEZ initiative, DLF has tied up with Nakheel, one of the leading property developers in the UAE; for hotels, it has a partnership with the Hilton Group; and for construction, it has tied up with the UK-based Laing O’Rourke Plc. DLF’s SEZ and hotel businesses will start adding to its topline in the next 3-4 years; the value of these initiatives
is, however, not captured in current valuations.

Retail and commercial properties in India are currently capitalised at 9-10%. Recently, Ascendas India Trust listed its REIT-like structure on SGX-ST at a cap rate of 6.1% on FY08 net operating income. This will drive valuations of Indian Realty players going forward.

The NPV per share of the existing businesses at INR 649. Additionally, the SEZ initiative is expected to contribute an NPV of INR 104 and the construction and hotel businesses, INR 10 and INR 30, respectively. After adjusting the debt, the NAV per share is INR 755.

Earlier this month, Citi initiated coverage on DLF with a BUY rating and a target of Rs 725.

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