DLF Completes Aman Resorts Sale. Will It Help The Stock Move Upwards?

It is a known fact that the real estate players in Indian markets have been witnessing tough days. The scenario of higher interest rates, lacklustre equity markets and overall slowdown in the Indian economy has made the matters worse for them. The realty players are witnessing problems like slower sales volumes and this has ultimately impacted the cash flow generation.  The problems were more for those who had taken extensive debt for large realty projects but the projects got delayed.  The situation was such that many realty companies were not able to meet the debt commitment in short term. 

DLF was one such player which was facing such an issue. With the other sources of funding like bank loans, equity markets and private equity funds drying up the companies were left with the option of selling its noncore assets. If investors could recollect, we had informed our investors about the DLF selling its non-core assets (http://www.dsij.in/article-details/articleid/7049/dlf-sells-its-wind-power-assets-for-rs-240-crore.aspx).

Now today, as per the notification of BSE, DLF Global Hospitality (DGHL) a 100% step down subsidiary of DLF has completed the sale of 100% equity stake in Silverlink Resorts Ltd. “SRL” (the owner of Amanresorts) to Aman Resorts Group (ARGL) for an enterprise value of USD 358 million. The sale has been in the form of management buyout. This was marginally higher than what we had stated in our article last time. We had Estimated a value of Rs 1650 crore for the same transaction. However, DLF got USD 358 million, which is more than Rs 2100 crore at current valuations. 

If we consider the current debt level of the company, as on 30th September 2013 DLF had net debt of Rs 19508 crore. This deal would surely help the company to reduce some of its debt and add something to bottomline as the interest cost would be reduced. However the event has been already discounted in the stock price earlier as the talks of the same has been under discussion since March 2013. But the only advantage would be the incremental amount DLF has got as the INR has depreciated a lot against the USD. As for the readers, those holding the counter can hold for marginal up-move from current levels. However no fresh buying is recommended at current levels.