DLF - fill it , short it, forget it

Stock Opportunities Techno-Funda Picks
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DLF ( naam to suna hi hoga ) has been a consistent performer at destroying wealth. Its reputation precedes it. In fact, sometimes i think the D in DLF stands for “Debt”. With ~27000cr worth of borrowings & a bad reputation in the baddest market of it all ( Gurgaon) its a ship that is sinking and forever plugging the leaks to stay afloat. Anyways i digress.

In late 2009, DLF had announced the merger of its subsidiary DCCDL (DLF Cyber City ) with promoter firm Caraf Builders & Constructions. DCCDL had then issued CCPS (compulsorily convertible preference shares) worth Rs 1,597 crore to promoters. Somewhere in Feb 17 the promoter firm it announced its intent to sell 40% of its stake (should the pref shares be converted into equity ) to external third parties for 12000-14000 crores. The promoters would then infuse this money to pare the debt. Aakhir umidon pe duniya kayam hain. Anyways i digress.

This deal has been delayed. Discussion with shortlisted investors are at an advanced stage and will shortly be presented to the Committee of Independent Directors for evaluation and final decision. Expected timeline for completion of the deal remains to be H1CY17. DLF promoters have agreed to defer conversion of their CCPS to equity in DCCDL till March 2018 at the existing coupon rate of 0.01%. ( from an edelweiss report )

Promoters in DLF hold close to 75% stake and they certainly haven’t got a history of being friendly to minority investors.

In short ( pun intended ), DLF is bad news. The run in prices in the last few months is a mirage and heres why.

When you look at the monthly DLF chart in a normal way it looks like this. Its difficult to see the recent peaks and valleys. Not impossible but difficult.

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However, if you look at the log chart , its a picture perfect down trend with a clear trend line sloping downward. There is no other way of looking at it.

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Since times immemorial the price has tried to break this trendline but the trendline has always swatted it away. This time the price is making another attempt - if it is successful at breaking the previous top at 170 and closing above the trendline i will be in shock as the residential NCR market is the most sluggish of them all and 40% of their stake in their crown jewel DLF cyber city is proposed to be sold. If they manage to sell the stake - its bad ( killing the golden egg laying goose) - if they dont manage to sell it its bad ( debt wont come down ). This is a perfect short opportunity IMHO

You can buy put options of DLF to take advantage of this opportunity. various lots are available at strike prices ranging from 160 to 185. You can look at the option chain

https://www.nseindia.com/marketinfo/companyTracker/mtOptionKeys.jsp?companySymbol=DLF&indexSymbol=NIFTY&series=EQ&instrument=OPTSTK&date=-

I am going out on a limb here, but i shall be very very surprised if DLF breaks upward.

Disclosure - not bought any puts yet but certainly tempted. Also, trading options is a short cut to losing money so please be careful and unless you are an expert at these things dont do it. I am just pointing out a possible opportunity and myself have not acted on it.

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Not sure about the fundamentals but strictly from the monthly charts perspective, in the near-term there is an uptrend in terms of making higher lows and higher highs. Even if you take 2016 and 2017, the Feb 2016 low and the demonetisation low, there is a clear case of higher low, so the stock may be bottoming out. Going the popular media opinion of real-estate all set to boom again because of REITs and reforms and interest rates and surplus funds with banks etc., there is a positive momentum which just might lead to a multi-year breakout. Just my two cents.

Disc. Not invested.

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Real Estate companies which have intelligently managed debt (ashiana comes to mind) and have a shareholder friendly management will certainly do well. Real estate sentiment as you rightly pointed out has turned. However DLF has a mountain of a debt to climb and its key market is really sluggish. The price has run up too sharply for my liking with no improvement in company fundamentals. I am tempted to put.

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I would have a different view, albeit conditionally. If the stock closes above 160 tomorrow, then it would be a mother of all long opportunities. The stock’s 200 week EMA is at 159.7 approx and it has “never” broken it, which has also co-coincided with the trendline. On monthly charts, the trendline is already broken as far as my charts go and moreover between this moving average and the trendline, the trendline is nowhere near as important as this EMA. Also, the stock is making higher highs and higher lows for last few weeks and the monthly and weekly oscillators both doing well, infact monthly macd took support at signal and started moving up - a bullish condition. if the stock closes above 160 in the next two days, then its a superb long.

Disc - no trades here but looking at this setup very closely because of the above mentioned observations and will play only in F&O.

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Thats interesting! DLF is already doing a PE of 50+. if it does lets say a PAT of ~700 cr ( in a rocking result) in 2017 its PE will still be ~40 ( at the current market cap levels ). I am not too sure the company deserves these valuations ( in case the stock moves up ). Maybe, @hitesh2710 hitesh bhai and other techno funda veterans can shed some views on the charts ( if not the fundamentals). After all, from an educational perspective it will be interesting to know how a seasoned practitioner would approach this situation. All views are invited!

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EPS debate is useless because there is no way to know the right PE for any stock. All, i know is that if indeed the breakout happens then news will follow. I wont be worried about the fundamentals of the stock as in F&O my funda of trading is totally technical. For more involved and satisfying investing, i “only” invest in small and micro-cap. So for me DLF is just a F&O play based on an interesting technical setup.

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DLF_Monthly_17-04-2017.png930×551 25.4 KB

A quick update. DLF Ltd has broken its trendline nemesis. I cant say i am not surprised. I would wait for a throwback and test of the trend for confirmation. However, i must say that it looks good to go as it is a decisive break.

From an educational point of view this just reiterates that you should wait for trends to break before acting and avoid preempting moves else you may be on the wrong side of the market. Mighty relieved i didnt cave into temptation.

Perhaps todays news in economic times about RERA was the trigger.

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This should be not be credited, to RERA news, as it was already in the known realm for a long time (though dont rule out). I guess this was more to do with technicals (even IBULL REAL). I agree with your learning and i think another big learning should be that not just one parameter should be used for taking a positional trade. As we can see, the stock did manage to close above the 200 WEMA on thursday. Furthermore, for a positional trade, price-volume-momentum has to agree. And in case of DLF apart from closing above a major long term moving average, momentum and volume both were indicating a strong upmove, along with positive divergence. On top of it, the sideways movement on wed,thur and friday was used to create a huge amount of long positions in the F&O, clearly indicating of an impending upmove.

i like your objective of using technicals for trading and you are one of those few on this forum who do it. I hope we all can collaborate and learn more from each other in quest to be better and more profitable traders.

Disc- went long on friday.

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Looks like this did turn out to be a multi-year breakout :slight_smile:

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Yes , it broke its bogey with a vengeance

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it did. and especially for traders in the stock, its been a very profitable one :boy: …

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From Kotak Research Report:

DLF continues to report robust operational performance with sales of Rs7 bn in 1QFY20 along with stable rental income of Rs7.2 bn from DCCDL in 1QFY20. Improved performance on the residential portfolio and stable earnings from lease portfolio (under DCCDL) will likely be augmented by 3.2 mn sq. ft of under construction properties to be commissioned over the next eighteen months.

DLF sold an area of 1.56 mn sq. ft during the quarter for sales value of Rs7 bn in 1QFY20—an improvement over average quarterly sales of Rs6 bn in FY2019, and ahead of their sales target of Rs27 bn for FY2020E. Outstanding completed inventory stands reduced to Rs109.7 bn (area of 10.8 mn sq. ft) as of June 2019 while pending receivable from sold inventory now stands at Rs28 bn. Management highlighted that EBITDA from sold and unsold inventory to be recognized stands at Rs109.8 bn (Rs58.3 bn from sold and Rs51.5 bn from unsold).

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DLF is seeming to be a good bet for playing long. Its a large company with leadership position having a dream portfolio - of excellent rental business along with a reputed developmental business. Already has a strong land bank at historical values which when converted into saleable/renteable asset will add significant value. Firms like Kotak Insti, JP Morgan, HDFC securities are raising targets. Company is seeming to be focused on delivering on its promises. No longer cheating the shareholder like acquiring 40% of the rental company, by some corporate action. How to conduct a comparative valuation with peers in the sector to identify its relative attractiveness as a buy

has

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Recent Developement

DLF aims Rs 2,500-cr sales booking in FY21 despite COVID-19:
With housing demand picking up since June onwards, with enquiries from prospective home buyers rising, the company is targeting to achieve sales bookings of Rs 2,500cr in the ongoing fiscal, marginally better than previous year.

DLF says it will be REIT ready in 15-18 months:
DLF’s rental arm DCCDL (joint venture between DLF and Singapore’s sovereign wealth fund) has started the process of structuring its rent-yielding commercial assets in Real Estate Investment Trust (REIT) form but the timing to launch the public issue will be decided by the promoters

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Property prices in NCR are up 44% yoy outpacing both Mumbai and Bengaluru region. DLF and Anantraj big players there

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Source: Road to Prosperity...

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This is a great space which got acquired by DLF - its something which fills the gap for Gurgaon golf course road and gold course extension road.

Rapid metro is till sector 55-56 and will extend further once the IREO land which remains undeveloped got halted ie the sector from where extension road begins.

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What do you think about valuations at current levels?

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Yeah i am seeing multiple triggers which could re rate DLF if these valuations are looking bloated. EBITDA/Pre Sales is something to track here
Other businesses in real estate like Prestige look value bets to some extent being a Pan India player. But DLF is a momentum play too in the short to medium term.

  • Medanta-DLF JV setting up hospital in South delhi and that too coz of requirements.
  • DLF Ireo land acquisition and that too at premium location in heart of Gurgaon where extension road just starts. So this is an actual re rating thing. DLF does really well building an ecosystem and just not residential.
  • I do see a lot of movements wrt areas leading to the Ireo land already may be govt entities are collaborating coz of elections + DLF and oberoi coming to sector 58.

I have done some study around sector 58 which has a lot of demand just wrt scarcity

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The stock is in a strong bearish phase… A high beta stock, regularly gives solid breakdowns… this one is expected to continue for a while as its come after a huge rise. 38% retracement is @ 790 and then its all the way down to 740. Fundamentally the sector is in a uptrend and this being the strongest play in the sector will ultimately make a new high (cross1225), the management is doing all the right things - being conservatively aggressive (as the recent golf course extn land buy demonstrated), Mumbai entry, Goa-crazy development… should be a trend setter. Margins should look up now as the new-price products start getting delivered - the focus clearly being on timely execution… Sales momentum is on with the Super-premium (better than Camellias) on the way. 17k cr sales guidance should be beaten. Balance sheet has never been better. The rental piece firing on all cylinders… 6kcrs FY25 exit rentals guided. What can go wrong?? Haryana Politics-Can it have an impact?

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