Over last 12M, DLF share price has risen 18.5% outperforming Nifty by 600bps. Residential Dev Co. performance has been subpar (weak presales/profitability) vs Rental Business, which continues to outperform (new leases at higher rate, limited vacancy). Whilst we expect residential weakness in DLF’s key micromarket Gurgaon to result in longish pre-sales cycle, Rent Co. stake sale will be key from the cash flow perspective. Total fund infusion in two stages of the corporate action is expected at Rs 95-102bn. This will result in Net D/E coming down from 0.85x to 0.25x end FY17E. We resume coverage with a BUY and SOTP-based TP of Rs 191/sh. Stock offers attractive risk-reward.
Valuation : They have adopted DCF methodology to arrive at DLF’s NAV/share. We value the residential real estate business at Rs 30/share, commercial annuity assets at Rs110/share, others - hospitality & project management at Rs 40/share, Land bank at Rs 149/share and reduce net debt at Rs 138/share to arrive at end-FY18E NAV of Rs 191/share for the Company.Resume BUY on DLF with a target price of Rs 191/share. Their valuation is based on 1x our endFY18E NAV forecast.