While recent asset sale brings it closer to divestment target, success of new launches is critical to cash flows.
The company, which had a net debt of Rs 22,500 crore in September 2011 has a target of raising Rs 6,000-7,000 crore from the sale of non-strategic assets over the next three years starting this year. Besides Pune SEZ, DLF exited from Noida IT Park and sold land in Gurgaon. The three sales will fetch the firm Rs 1,290 crore. Analysts say the trigger for the stock will come from the sale of Aman Resorts, which could fetch it Rs 2,000 crore.
This will not only help meet its FY12 divestment target of Rs 3,000 crore and bring down debt to Rs 19,000 crore levels but also help achieve nearly half of its overall non-core asset sale target. This should also bring down the interest costs, which are likely to be in the region of Rs 2,500 crore for the current financial year.
While asset sales would help improve cash flows, sales from new project launches would be crucial. However, analysts say progress on plot sales and residential projects could take longer because of the slowdown as well as due to delays as some of the states will be going to the polls next year. What would definitely help, is the Rs 1,600-1,700 crore income the company earns from rentals. This is nearly 70 per cent of its interest outgo and would act as a cushion should things worsen.
What has not helped matters for the company is a recent Crisil downgrade on a slew of DLF’s debt instruments. Analysts say that this could change if the pace of asset sales improves and the interest rate cycle turns. Lower interest rate will not only help the company refinance its high cost debt but make it cheaper for consumers to purchase housing units.
The DLF stock, which is down 37.3 per cent in 2011 against 24.6 per cent decline for the Sensex, is trading at a discount of about 35 per cent to its net asset value.