While sale of the Aman Resorts chain for $300 million or Rs 1,650 crore is a positive and will help pare DLF’s debt mountain, investors were lukewarm to the announcement and the stock ended flat over the last two trading sessions. While the markets had discounted part of the deal, the final price was slightly less than the earlier expectation of Rs 1,800 crore.
Closure of the deal over the next couple of months as well as other asset sales in the recent past, will help the company raise about Rs 4,750 crore from divestments, in line with its expectation of fetching about Rs 5,000 crore from the sale of its non-core assets. While the company has debt of Rs 21,200 crore currently (down from Rs 23,500 crore at the start of this financial year), the Aman Resorts deal should bring this to about Rs 19,500 crore. If DLF manages to dispose the windmill assets, expected to generate about Rs 900 crore, the company would be able to bring down net debt to about Rs 18,500 crore.
Its debt to equity ratio, currently at 0.85 (at the end of November, post the NTC mill land sale), is expected to come down to 0.75 by the end of the financial year and further to 0.62 at the end of FY14. Says Param Desai of Nirmal Bang, “We expect the net D/E ratio to decline further to 0.7 in FY13 and 0.6 in FY14 led by non-core asset sales (NTC land sale, Aman Resorts and wind energy business) and improvement in operating cash flow (launch of high-value new projects)." What could bring this down further is dilution of equity to meet Sebi’s guidelines, with the promoters currently holding 78 per cent. The management is looking to raise about Rs 1,500 crore from a fresh issue (FPO/IPP) and is waiting for the deleveraging process to get over before hitting the equity markets.
While reduction in debt, the key overhang resulting in the underperformance of the stock, is happening at a gradual pace, the Street will be keenly looking at improvement in cash flows, as well as further fund raising effort. Says Arun Aggarwal of Religare Institutional Research, “We expect projects worth Rs 11,000 crore to be announced over the next few months and pre-sales of Rs 3,500 crore in the second half of FY13. This should help improve the volume momentum. Further, 30 per cent of the ongoing projects are scheduled to be completed in the next two-three quarters.”
The key to achieving these numbers will be the launch of five million square feet in its Phase-V land in Gurgaon. Say Saurabh Kumar and Gunjan Prithyani of J P Morgan, “If the launch of its luxury project in Gurgaon takes off, it could lead to a turnaround in its operations. DLF is targeting pre-sales of Rs 10,000 crore over the next four-five years from this project with Ebitda of Rs 1,500 crore a year. Along with the ongoing asset sales programme, we believe it has the potential to return the company to an FCF (free cash flow) positive zone,” they add.
Given the recent deleveraging moves and likely improvement in cash flows, most analysts have a ‘buy’ call on the stock, with targets in the range of Rs 260-285.
