We have cut our F11-12 EPS estimates to account for delay in the Mumbai project and 25% lower volumes. Our F12-13 EPS estimates assume 18-19 msf (including rental assets) and F2H12 Mumbai launch.
F3Q11 results: DLF reported a 22% yoy (5% qoq) rise in sales and 5.9 ppt OPM expansion to 47.5% (due to higher margin plot sales). Together with higher interest and depreciation costs, this led to a 2% yoy rise in net profits to Rs4.7 bln (our estimate was Rs4.2 bln). Total income included Rs3.4 bln contribution from rental income and Rs4 bln from sale of non core assets (at single digit margins). DLF capitalized roughly Rs2.3 bln interest costs.
Operational update:
Strong leasing volumes (1.62 msf, 4.2msf for F9M11 ahead of 3-4 msf F11 target) was the bright spot for the quarter.Development business, as expected, was a disappointment (due to lack of new launches) with 2.5 msf sales (F9M11 pre-sales of 6.5 msf vs. F11 guidance of 12-15msf). Importantly, the lucrative Mumbai launch could be further delayed by 2-3 quarters. Net gearing went up sequentially to 79% (73% as of September 2010) due to strategic land investment (Manesar and Chandigarh).
Deleveraging could take a while in view of DLF's plan to invest in new land for two to three quarters (Rs3-4 bln per quarter). DLF detailed six project launches in the near term with 8msf sales potential to make up for the year.
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