Nirmal Bang bets on DLF, Prestige, Sobha: Here's why

The broking firm is bullish on Prestige Estates , Sobha Developers and DLF . According to Desai, these companies have seen good amount of pre-sales for their new projects over the last six-nine months and the cash generated will start reflecting in their books going forward.

"There is still enough headroom for the stock prices to go up in these three counters. On Prestige our price target is around Rs 210, for Sobha it is around Rs 513 and for DLF it is Rs 296," he added.

Given the issue of pledged shares, one should stay away from Unitech and Housing Development Infrastructure (HDIL) now.

Below is the edited transcript of Param Desai’s interview with CNBC-TV18

Q: What are your first thoughts on DLF? How do you expect the upcoming share issue to go through for DLF?

A: In case of DLF aside from last three months they were focusing more on the plotted sales just to ensure better working capital management, but that was not helping to solve cash flow concerns. On the other hand, the non-core asset sales were going through, but the quantum was not big enough.

In the last three months, sale of three big ticket asset sales is likely to reduce the net debt by around Rs 50 billion that is the first move in the right direction fundamentally. Secondly, the management is renewing focus on the high value new projects in Gurgaon phase 5 which is likely to kick in from the next seven months. That would have substantial value to the cash flow and with this offer for sale (OFS) going through that will bring around Rs 20 billion.

Overall we are expecting net debt to equity to come down from 0.76 times from current level to 0.6 times. Fundamentally also we believe FY14 should be the first year where the company is likely to report free cash flow positive after a gap of four years. Structurally there has been change in case of DLF and the worst is behind for DLF.

Q: There was talk in the investor conference of DLF saying they will bring their debt down to Rs 15,000 crore. Aren’t they standing at about Rs 21,000 crore? What more do they have to sell actually?

A: Yes, their current net debt is about Rs 21,000 crore so if one knockoff Aman Resorts which is not yet flown in the balance sheet, it will bring another Rs 1,600 crore of cash. Their wind business will bring about Rs 900 crore of cash and OFS will bring around Rs 2,000 crore cash. All this will bring down their net debt to around Rs 168 billion.

Then they have support of high value new launches in phase 5 that is 1.5-2 million square feet which is in the range of more than Rs 20,000 per sq ft as selling price. Overall the mixture of both noncore asset sales and high value new launches should bring down the next debt to around Rs 16,000-17,000 crore over the next one year.