DLF reported revenues of Rs16.5 billion, driven primarily by recognition of the recently launched SBM project in Delhi (Rs6bn), Rs2 billion from sale to DAL and Rs2 billion from rental income.
Profits were high at 45% due to higher margins in the SBM project (being in the centre of the city). Interest expense increased to Rs2.87 billion due to the company recognizing the interest expense of some assets recently transfer to fixed assets.
Earlier, DLF was capitalising the interest expense against those assets since they were under constructions. Profits were higher q-o-q (71%) at Rs3.95 billion.
Balance sheet health (net debt : equity at 0.5) has improved due to DAL inflow which has been Rs25 billion. The company expects to raise Rs50 billion in FY10 from sale of non-core assets, which includes exiting from projects such as Dankuni and Bidadi.
The 1Q FY10 balance sheet showed an q-o-q increase in debtors/unbilled receivables by Rs10 billion.
The key assumptions underpinning our upgrade are: (1) assumption of U-shaped recovery. We have increased property prices by 30% each for FY13 and FY14; and (2) shifting our base year from FY10 to FY11.
We are increasing our target price to Rs285, which is 30% below the current stock price of Rs405.
We maintain our recommendation since the stock trades at a premium of 42% to our increased target price, which is unsustainable.
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