Shares of realty major DLF rose six per cent in Monday’s trading on expectations the company’s debt reduction strategy was falling in place, said analysts tracking the stock. Shares of the company touched a high of Rs 234.75, up 6.5 per cent on the Bombay Stock Exchange, before closing at Rs 233.60 (up 6.01 per cent). The DLF stock has risen 4.5-5 per cent in the last couple of trading sessions.
The Royal Bank of Scotland (RBS) upgraded the real estate company’s stock amid reports that it would sell its information technology (IT) parks in Pune and Noida for Rs 1,300 crore. When contacted, a DLF spokesperson said his firm would not like to speak on any market speculation.
“DLF’s de-leveraging strategy has kicked off well, with successful plot sales in new Gurgaon and positive newsflow on monetisation of its IT parks. We believe the interest rate cycle and DLF’s debt are peaking out and expect further news flow (on asset sales, sales volume) to be largely positive,” said Prakash Agarwal, an analyst with RBS, in a note to clients. He upgraded his rating on DLF stock to “buy” from “sell” and raised the price target to Rs 250 from Rs 195.
There are a couple of triggers on the stock. One is plotted sales, which is generating faster cash flows, and the second is the sale of non-core assets – DLF plans to raise Rs 10,000 crore from sale of non-core assets to bring down its Rs 24,000 crore debt. ‘‘In last week’s rally, realty shares were not participating. In the last couple of days, they have started participating. DLF being the market leader is benefiting as we expect some action on its debt-reduction plan,’’ said Suman Memani of Pinc Research.
Last week, DLF launched 410 plots in Sector 91 of Gurgaon. It is selling these at a basic price of Rs 40,000 per sq yard, which is likely to fetch it Rs 700 crore. The Gurgaon launch follows a similar project in Indore, where it sold 2.4 million sq ft at Rs 999 per sq ft, netting Rs 300 crore. These will be followed by launches in Chandigarh and Lucknow in the next few weeks, pending approvals.
For long, analysts have been rather concerned about the cash-guzzling commercial developments sitting on the books of developers like DLF. Given that large commercial properties like SEZs function on an annuity basis (long-term leases), realisations come over a period of time. This puts pressure on the balance sheets of companies. As per reports, DLF has decided to exit its Noida and Pune SEZ, which indicates a strategic shift, believe analysts, as it means the company is prepared to monetise these expensive assets and stick to its core business. The company is proposing to sell 70 per cent stake in each of these for Rs 1,300 crore. The lack of monetisation avenues for these assets was creating cash-flow issues for developers and if this trend picks up pace it could ease the debt concerns for the sector, says Nomura.
“In our view, the Noida IT park is spread over 1.3 mn sq ft, with CSC as the major tenant and significant space unleased still,” analysts say.
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The management has not commented on the exact figures and timelines involved, but is at an advanced stage of due diligence and is likely to close the deals in the next three months.
Sensex rises 51.68 pts
The Sensex edged 0.3 per cent higher on Monday, even as traders maintained a cautious view. Up 0.8 per cent, Reliance Industries was among the biggest gainers, after falling 4.1 per cent on Friday. The Sensex firmed 0.28 per cent, or 51.68 points, to 18,814.48 points, extending last week’s 2.9 per cent gain. 19 of its components closed in the green. The 50-share NSE index gained 0.4 per cent to end at 5,650.50.