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The announcement of a $300-million deal between real estate major DLF and Singapore’s sovereign wealth fund GIC on Wednesday has set the DLF stock and realty index on fire amid bearish real estate and volatile Indian equity market conditions. Shares of DLF and the BSE Realty index gained close to 14 per cent and 5.3 per cent respectively, since the announcement. DLF has the highest a weightage of 28.9 per cent in the realty index.
Shares of DLF have gained about 30 per cent after it hit an all-time low of ₹93 on August 24, while the BSE Realty index gained 12.45 per cent after touching a 52-week low of 1,142.72.
Meanwhile, the S&P BSE Sensex has crawled back from its 52-week low levels.
DLF was the biggest gainer on Thursday among A-Group stocks on the BSE.
Upside potential Based on the target price estimated by JP Morgan (₹210) and Kotak Institutional Equities (₹170), the DLF scrip provide further upside potential of at least 42 per cent. This might also keep the realty index in the green despite the disappointing industry news of huge unsold inventory in the country.
Both brokerage firms have expressed positive views on the deal, saying it will help cut DLF’s debt and unlock value of its land bank.
DLF has residential net debt of ₹7,000 crore and total net debt of ₹21,600 crore.
Rate cuts likely to help JP Morgan is overweight on the DLF stock as it believes the deal would help the realtor achieve 90 per cent of its asset sales guidance of ₹3,000 crore for the year making it cash neutral. Further, it expects DLF to register positive free cash flows from FY17.
Rate cuts, if any, by the RBI will improve consumer sentiments, help accelerate the debt reduction process and increase the quantum of free cash flows generated every year.
GIC will invest close to ₹2,000 crore for 50 per cent stake in two residential projects of DLF’s wholly-owned subsidiary, DLF Home Developers, located in Delhi.
According to Kotak, the deal values the 50 lakh square feet of premium residential development project at ₹4,000 crore, assuming 50 per cent dilution, much higher than its estimate of ₹3,200 crore.
There are expectations of more asset monetisation and further improvement in balance sheet. According to media reports, DLF is considering a three-phase plan to cut debt by 50 per cent as well as a restructuring plan over the next 8-10 months.
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