DLF, incorporated in 1963, is a north India based real estate developer

Hindustan Petroleum Corporation: We maintain ADD on Hindustan Petroleum (HPCL) with a price target of INR 228, owing to an expected recovery in demand for petroleum products and, subsequently, refining margins. 1Q EBITDA and APAT were 3% and 9% above estimates owing to higher-than-anticipated other income. EBITDA came to INR 44bn (vs. EBITDA of INR 16bn in 1QFY20 and an operating loss of INR 17bn in 4QFY20). Refining business' inventory gains were INR 2bn, and marketing inventory gains were INR 4bn. Forex gains stood at INR 490mn. Adjusting for these, core EBITDA stood at INR 37bn (+85/9% YoY/QoQ). DLF: DLF reported revenue of Rs 5.5bn (-59%/-68% YoY/QoQ, 12% miss). Issuance of the possession letters got adversely affected during the lockdown and, hence, impacted revenue recognition. Rental business was impacted owing to the retail malls remaining shut due to lockdown and waivers given by DLF to tenants. Construction has recommenced at all sites, and DLF is operating at ~ 65% of pre-COVID levels. The company has not availed interest moratorium. Office segment remains robust with longer-term drivers in place and robust collections of 95%. We do believe that rental escalation may remain soft. Retail recovery will be much more protracted as its worst hit. Balance sheet remains comfortable with net D/E of ~0.1x.

Risks emanating from the work-from-home move are not yet visible on the ground and will gradually emerge; de-densification is the near-term savior, which shall restrain the increase in vacancies, and further consolidation will aid Tier1 developers. Pricing may remain soft as landlords will not risk losing revenue. We are positive on mixed-use plays with DLF, Prestige Est and Brigade as top bets. Continuing with our Real Estate Knowledge Series, we hosted the Real Estate Emerging Trends APAC and India Call with JLL India CEO and Country Head Mr Ramesh Nair and JLL, APAC Director of Research, Mr Roddy Allan. Whilst the near-term data points remain weak as the Indian economy grapples with COVID-19 headwinds, we are seeing incremental positive news flows on the following: (1) large occupiers are showing interest in leasing new space in Southern India; (2) recent Sobha 1QFY21 pre-sales numbers have been better than expectations (65% of pre-COVID levels); (3) malls are gradually opening, and consumption is picking up; (4) very few office occupiers have invoked force majeure; (5) rental negotiations for renewals have started; (6) rent collection in office remains at 90% plus; (7) construction on new supply has been delayed/postponed to manage the supply/demand equilibrium. These pointers paint a positive picture.

With slow movement on inventory of Rs 48bn in the luxury projects of DLF Phase V, the company is recalibrating its go-to market with conversion of plotted land-bank to low-rise independent floor development with Rs 1.5-3mn ticket size. This shall enable the company to bridge the gap in sales. Though the net debt is expected to remain in the same range as of 4QFY20, through accelerated monetization of inventory coupled with monetization of its land bank and land entitlements, the company plans to reduce net debt to ~Rs 20bn. We maintain BUY. Key risks (1) Further delays in monetization of luxury segment inventory (2) Inability to fully utilize mark-to-market potential from rental assets. DLF luxury real estate continues to suffer from weak demand, elevated property prices and hence slower churn in ready inventory. Leasing portfolio continues to perform and with addition of new assets we have increased our SOTP-based TP to Rs 284/sh (vs. Rs 265/sh earlier). Strong balance sheet augurs well for lease asset portfolio growth.

Despite increase in net debt during the quarter with net D/E at 0.12x (vs 0.09x in 1QFY20), it is within acceptable limits with the company also committed towards further reduction in leverage over FY20-21E. Residual unsold inventory stands at Rs 101bn. Total residual collection on sold inventory is pegged at Rs 27.4bn vs. Rs 17.5bn of balance construction costs. DLF's luxury portfolio is expected to see increased momentum in 2HFY20E. With strong balance sheet, robust lease momentum and residential pre-sales expected to pick-up in 2HFY20, DLF is well placed. We maintain BUY. Key risks (1) Delay in ready inventory monetization (2) Inability to fully utilize mark-to-market potential from rental assets. We maintain BUY on DLF post positive pre-sales trajectory for a second consecutive quarter across the development portfolio, settlement of DCCDL dues and strong lease rental momentum. Our SOTP-based TP is maintained at Rs 258/sh. DLF balance sheet is strong post QIP and promoter fund infusion.

DLF has achieved significant BS deleveraging with net D/E hitting 0.09x in 1QFY20. Residual unsold inventory stands at Rs 110bn (~4.5 years of inventory). Total residual collection on sold inventory is pegged at Rs 28bn vs. Rs 20bn of balance construction costs. DLF Phase V luxury projects are seeing good traction. With strong balance sheet, robust lease momentum and residential pre-sales recovery, DLF is well placed. We maintain BUY. Key risks (1) Delay in ready inventory monetization (2) DCCDL settlement (3) Inability to fully utilize mark-to-market potential from rental assets (4) Overall slowdown in leasing momentum. We maintain BUY on DLF post positive pre-sales trajectory in Phase V projects, debt reduction and strong lease rental momentum. Our SOTP-based TP is maintained at Rs 258/sh. DLF balance sheet is strong post QIP and promoter fund infusion.

DLF Ltd primarily engaged in developing of residential and commercial properties. The company has a unique business model with earnings arising from development and rentals. Its exposure across businesses, segments and geographies mitigates any down-cycle in the market. From developing 22...

Over last 2yrs DLF has achieved significant BS deleveraging with net D/E likely hitting 0.1x by FY20E end. Pre-sales recovery is on track with 4.7yrs of unsold completed inventory. DLF maintained that it will launch projects during advance stage of completion. Hines JV is on track with construction commencement by Dec-19. Sales strategy here will be mix of strata sales and leasing. DLF phase V ~2-2.5mn sqft new construction will start in Dec-19 and will cater to Crest type product. With strong balance sheet, robust lease momentum and residential pre-sales recovery, DLF is well placed. We maintain BUY. Key risks (1) Delay in ready inventory monetization (2) High interest rates (3) Rental correction. We maintain BUY post an encouraging quarter. Our SOTP-based TP has reduced to Rs 258 (vs Rs 264 earlier). We have increased our FY20/21E EPS by 19.8/50.2%, led by debt rationalization post QIP, promoter fund infusion and reduction in DCCDL dues post 2HFY20E.

We Maintain BUY with NAV- based TP of Rs 264/sh. DLF posted Revenue/PAT of Rs 22.2/3.4bn (Rs 13.5/2.9bn higher on IND AS 115). Profits from Associates (incl. DCCDL) dipped 7% QoQ to Rs 2.2bn. DLF has achieved net presales of Rs 5.6bn (vs gross presales of Rs 8.0bn) with 9MFY19 net presales now at Rs 17.9bn (vs. management guidance of ~Rs 22.5bn for full year FY19E).

Maintain BUY with NAV- based TP of Rs 253/sh. DLFs 2QFY19 revenue came in at Rs 21.4bn (+42% QoQ, 37% beat, Rs 10bn higher on IND AS 115). APAT was at Rs 3.7bn (Rs 4bn higher on IND AS 115). DLF has achieved net sales of Rs 6.3bn (>Rs 12bn of sales in 1HFY18 vs Rs ~10bn in FY18 considering the sales were paused till Nov 18).

Maintain BUY with NAV of Rs 279/sh. DLFs prior period figures are not comparable on account of DLF moving from Percentage Completion to Project Completion method of accounting under IND AS 115 from 1QFY19. This led to reversals of Rs 53.8bn from retained earnings (Revenue reversal of ~Rs 140bn, last 5yrs cumulative sales) for its uncompleted projects majorly in DLF 5 (as hand over/ possession letters were delayed even in some completed projects).

Maintain BUY with NAV- based TP of Rs 279/sh. DLFs reported 4QFY18 APAT of Rs 0.5bn (after adjusting for exceptional fair valuation and merger related items). DLF has achieved net pre-sales of Rs ~10/7.5bn in FY18/4QFY18 (sluggish offtake as RERA implementation resulted in sale freeze till Nov 17). Adjusted for valuation gains on DCCDL stake sale, DLF posted net loss of Rs 2.4bn in FY18.

Revenue grew by 112.21% to Rs. 1067.31 Cr in Q4FY18 when compared to the previous quarter. DLF Ltd Q4FY18 results Comment

In Q3FY18, DLF reported a revenue of Rs1,694cr (down 17.7% YoY, up 6.7% QoQ). EBITDA margin fell 510bps YoY to 41.4%. Aided by an exceptional gain of Rs8,569cr the company managed to report a PAT of RsRs4,091cr in Q3FY18. DLF opened sales across projects from Nov 2017 post RERA compliance, which may result in improved pre-sales traction on Rs150bn of inventory. DLF's promoters had infused fund worth Rs90bn via subscription to CCDs and Warrants of DLF Ltd. Till date Rs 71bn of loans have been repaid post the fund infusion. The management expects Devco to become debt free by FY19 end. We expect DLF's revenue to be de-grow over FY17-20E due to weak residential segment in NCR region. However, debt reduction and higher inventory worth Rs150bn are near term positive for the company....

With the recent price correction we upgrade to BUY with NAV- based TP of Rs 279/sh. DLFs 3QFY18 reported an adjusted net loss (after adjusting for exceptional gain on DCCDL FV). Despite recovery in 3QFY18 pre-sales to Rs 6.7bn (sales opened in Nov17, post RERA compliance), revenue recognition remained muted on account of the 10% collection threshold remaining untriggered (as most of the bookings were on token amounts).

DLF's board has approved fund infusion of ~Rs 150 bn in the company, higher than our expectation of Rs 100-120 bn via preferential issue (Rs 112.5 bn) to promoters and issue of ~Rs 37.5 bn (estimated based on CMP) to public investors.

DLF Ltd Q2FY18 results comment Revenue decreased by 22.46% to Rs. 1587.71 Cr in Q2FY18 when compared to the previous quarter. Also, it decreased by 23.32% when compared with Q2FY17.

As the impact of demonet has receded, we reduce the land bank discount of 10-15%. We maintain BUY with increased NAV- based TP of Rs 236/sh. DLFs 2QFY18 PAT came in 81% below estimates, on account of weak residential revenue recognition. No green shoots yet on B/S recovery, as (1) DLF has reopened sales only from 1-Nov-2017, post RERA compliance, (2) This impacted pre-sales over last 5 months (sales were closed since 1-May-2017), (3) Net cancellation of Rs 1.3bn, (3) Weak collections and a step-up in construction of projects nearing completion have resulted in Rs 17bn increase in net debt vs FY17. With projects re-opening, pre-sales will pickup from 3QFY18E. Further, GIC has received CCI approvals for DCCDL deal and fund flow including that from DLF Promoter/QIP is expected in FY18E.

DLF announced the DCCDL transaction with GIC valuing the former at equity value of Rs 302 bn (implied cap rate of ~8%, in line with market valuation). Post the deal, management expects to reduce debt in DevCo to Rs 20 bn (from Rs 165 bn)

Near term outlook: Whilst the game changer augurs well for balance sheet and leaves scope for office asset expansion in newer geographies, residential business remains dull. Any meaningful acceleration in nearing completion residential inventory of Rs 145bn will lead to further re-rating. We maintain NEUTRAL. Much awaited Game Changer happens finally, with GIC buying out DLF promoter stake in DCCDL. Post the Promoter and QIP fund infusion of ~Rs 130bn, DLF net D/E will reduce from current 1.05x to 0.31x. The interest cost will reduce to less than half from current annual run-rate of Rs 30bn/yr. Deal values stake sale to GIC at an Enterprise Valuation of Rs 356bn and Equity Valuation of Rs 302bn. Deal valuation is higher than our estimate of Rs 263bn. The implied cap rate post deduction of the FSI value of under development assets is 8.4%.