DLF Ltd (DLF) is a real estate company based in India. The company is a leading player in this industry in terms of revenues, market capitalization and developable area. Currently it has 288 msf of planned projects with 44 msf of projects under construction. The primary business of the company is development of residential, commercial and retail properties. It has a unique business model with earnings from development and rentals. At present, DLF has presence across 15 states and 24 cities in India. It has also forayed into infrastructure, SEZ and hotel businesses.
Valuation and view
Over a last few years, DLF’s performance has been impacted by the continued weakness in the residential segment across different cities. Albeit, lower sales volumes, worsening balance sheet, with increasing debt and consistently negative operational cash flows continue to be the biggest concern but the company’s persistent efforts to bring down its debt is expected to fructify in the near term to certain extent.
We expect its revenue and PAT to report a CAGR of 10% by FY17E. Its RoE and RoCE are expected to show marginal improvement and remain at 2.6% and 6.1%.
At the current market price of Rs. 124, the stock trades at a P/E of 35.2x and 28.2x for FY16E and FY17E respectively. We assign a forward P/E of 35x and recommend ‘BUY’ on the stock with a target potential of 20%, from 12 months perspective.
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