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DLF Buyback a Negative – Stock Downgraded by Credit Suisse

July 15, 2008

DLF’s Buyback saga is a negative to the company in the prevailing macro situation. Credit Suisse just a while ago has downgraded the stock from NEUTRAL to UNDERPERFORM. It would have been better had the company utilised its cash to fund upcoming developments.

Real estate developers are seeing slowing demand for both residential and commercial projects – which coupled with difficulties in fund raising from other sources, will likely lead to delays in launches in our view.

The problem is compounded by liquidity worries – developers are becoming hard pressed to fund ongoing developments: debt is available only at high cost, volatility in equity markets is making fund raising impossible and difficult and private equity transactions have dried up due to the loss they have suffered in Realty.

DLF is expected to report an EPS of Rs 43 for FY09. Credit Suisse has set a target price of Rs 342 for DLF based on a 30% discount to FY09E NAV, which implies a downside of ~24% from current levels with a downgrade recommendation on the stock to UNDERPERFORM from NEUTRAL.

Update: Citi has set a target price of Rs 585 on DLF with EPS estimates of Rs 46 for FY2009. Citi’s NAV estimate of DLF is Rs 650 / share.

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