DLF surges 50% from lows ahead of ruling on ban appeal

MUMBAI: Investors, who lapped up property developer DLF shares soon after the Securities and Exchange Board of India(Sebi)’ s order barring its promoters from accessing the capital market, are laughing their way to the bank. DLF has surged 50% from its life-time lows on October 16, a couple of days after the regulatory ban on its founders.

Analysts said the stock has gained on hopes that the Securities Appellate Tribunal(SAT) may rule in favour of the company. The stock had crashed nearly 42% in a single day on October 14 following the Sebi order. The company and six of its senior-most officials including founder-chairman KP Singh, were barred from accessing capital markets for three years. The final SAT hearing is scheduled for December 10.

“DLF’s appeal over Sebi’s order barring the company from accessing the securities market is scheduled to be heard over the next two weeks and development in these appellate proceedings will be a key driver,” said Abhishek Saraf, research analyst at Deutsche Bank in a note last week. “We believe that regulatory and judicial developments will determine the sentiment of the stock.

We maintain a ‘hold’ recommendation on the stock with a price target of Rs 170,” Saraf added.

DLF shares closed at Rs 153 on Tuesday, almost unchanged from the previous day.

Sebi took action against DLF for not disclosing details about three of its subsidiary companies in its IPO which fetched the company Rs 9,187 crore in 2007, the biggest public offer at that time. DLF promoters own 74.91% stake in the company; foreign institutional investors (FIIs) have close to 20% stake, while retail shareholders about 4.8% holding. Analysts said if the company loses the case in SAT, it will have to sell more assets to keep its debt levels under control.

“Whilst the company has filed an appeal against Sebi order, we think the company will need to do asset sales of Rs 1,500 crore additionally if the ban isn’t lifted,” said JP Morgan’s analysts led by Saurabh Kumar in a note to clients. The brokerage has a price target of Rs 210.

The company has guided to Rs 1500 crore of incremental asset sales, of which Rs 800-1,000 crore has good visibility, the analysts said. Analysts said a favourable SAT order will be critical for DLF’s fortunes.

“The demand environment continues to be weak in NCR and other markets. Any recovery is likely to be protracted and we would wait for a sustained pick-up before getting constructive,” said Citi analysts Atul Tiwari and Rishi V Iyer, in a client note.