DLF, a leading real estate company, is open for subscription with an initial public offer, IPO of 175,000,000 equity shares of Rs 2 each through a 100% book building process.
The issue would constitute 10.27% of the fully diluted post-issue capital of the Company.
Keynote Capitals report on DLF IPO:
The issue would constitute 10.27% of the fully diluted post-issue capital of the Company.
Keynote Capitals report on DLF IPO:
Recommendation - Subscribe with a medium term view
DLF is the largest real estate development company in India in terms of area of completed residential and commercial developments.
Land bank of 10,255 acres, of which developable area comes to 574mn sqft. The major portion of land bank (51%) is located in the NCR region.
DLF also has interests in developing SEZs, multiplex theaters and hotels and has entered into JVs, which will enter the insurance and capital markets segments. Though these projects are at nascent stages, they have a huge potential over the long term.
The proceeds of the IPO will be used in acquiring new land and funding existing projects. DLF will also prepay part of its long term debt.
We compared DLF with Unitech, its nearest competitor. The IPO is priced at 1.1x price to NPV, which is at a small discount to Unitech (whose land bank is almost equivalent to that of DLF) which trades at 1.2x, though the quality of Unitech's bank is not as good as that of DLF's. The high EV/sqft in case of DLF reflects better quality of the latter's land reserves and its high leverage.
The company has aggressive plans for the development of 44mn sqft area over the next 3 years.
While development of 44mn sqft in 3 years may be a tall order in itself, we believe DLF will continue to have a strong order book in the foreseeable future, given the sheer size of its huge land bank.
On the flip side, the scenario of hardening interest rates is the main concern from the industry point of view. We expect DLF to continue to generate negative cash flows during the next 3 years. Also, around 50% of its projects are to be completed only beyond FY10. The presence of 58 subsidiary companies makes it a complex corporate structure. In our view, the IPO can be subscribed to with a medium term view.
Concerns:
Hardening interest rates
60% of the developable area of 574mn sqft is still agricultural
High concentration on one region (51% of land is located in NCR region)
52.2% of residential, 72% of commercial and 57.3% of retail projects are likely to completed by FY10; therefore significant revenues likely flow in only by FY10 and FY11.
Some of the businesses like SEZs, Cinemas, Hotels and tourism are at nascent stages and will require investments going forward. In our view, a significant part of DLF's cash flows will go into these subsidiaries and joint ventures.
Also investments in long gestation period businesses like insurance may further pressurize cash flows.
DLF is the largest real estate development company in India in terms of area of completed residential and commercial developments.
Land bank of 10,255 acres, of which developable area comes to 574mn sqft. The major portion of land bank (51%) is located in the NCR region.
DLF also has interests in developing SEZs, multiplex theaters and hotels and has entered into JVs, which will enter the insurance and capital markets segments. Though these projects are at nascent stages, they have a huge potential over the long term.
The proceeds of the IPO will be used in acquiring new land and funding existing projects. DLF will also prepay part of its long term debt.
We compared DLF with Unitech, its nearest competitor. The IPO is priced at 1.1x price to NPV, which is at a small discount to Unitech (whose land bank is almost equivalent to that of DLF) which trades at 1.2x, though the quality of Unitech's bank is not as good as that of DLF's. The high EV/sqft in case of DLF reflects better quality of the latter's land reserves and its high leverage.
The company has aggressive plans for the development of 44mn sqft area over the next 3 years.
While development of 44mn sqft in 3 years may be a tall order in itself, we believe DLF will continue to have a strong order book in the foreseeable future, given the sheer size of its huge land bank.
On the flip side, the scenario of hardening interest rates is the main concern from the industry point of view. We expect DLF to continue to generate negative cash flows during the next 3 years. Also, around 50% of its projects are to be completed only beyond FY10. The presence of 58 subsidiary companies makes it a complex corporate structure. In our view, the IPO can be subscribed to with a medium term view.
Concerns:
Hardening interest rates
60% of the developable area of 574mn sqft is still agricultural
High concentration on one region (51% of land is located in NCR region)
52.2% of residential, 72% of commercial and 57.3% of retail projects are likely to completed by FY10; therefore significant revenues likely flow in only by FY10 and FY11.
Some of the businesses like SEZs, Cinemas, Hotels and tourism are at nascent stages and will require investments going forward. In our view, a significant part of DLF's cash flows will go into these subsidiaries and joint ventures.
Also investments in long gestation period businesses like insurance may further pressurize cash flows.
Source:moneycontrol.com
