Q2FY24 Review: DLF: Riding high on multiple tailwinds

1 Nov 2023 , 01:44 AM

DLF reported steady Q2 pre-sales in absence of a new launches; however collections and cashflow generation was strong with balance sheet turning net cash. H2FY24 would see sharp ramp up in new launches, and the momentum is likely to sustain through FY25 as well. DCCDL (rental JV) reported strong performance amid tough milieu; with healthy uptick in occupancy QoQ, and under-construction projects being ~90% pre-leased. Gurgaon (NCR) markets have seen strong pricing tailwinds over last 2-3 quarters, which are likely to pose an upside risk to DLF’s launch/pre-sales guidance and analysts of IIFL Capital Services DCF based valuations. Reiterate BUY and top pick in Real Estate space. 

Residential – Strong outlook for H2: 

DLF reported pre-sales of Rs22.3bn (8.6% YoY, 9.2% QoQ) in absence of any meaningful launches (Rs4.4bn GDV). However, H2FY24 is poised to be see launches of ~Rs190bn GDV, with projects in Sector 77 (Gurgaon) and Panchkula expected in Q3, while Phase 5 (Crest-2) could be either in Q4FY24 or Q1FY25. DLF’s recent foray into Mumbai with Andheri SRA project is on track for launch in Q1FY25, although the legacy Tulsiwadi project continues to be mired in litigation. DLF has not revised it pre-sales guidance for FY24 from Rs120-130bn but is confident of meaningfully surpassing the same. 

Commercial- Occupancy uptick encouraging, strong pre-leasing demand: 

While the overall office market continues to be in a recovery mode in India, DLF reported a healthy uptick in occupancy to 91.9% (vs 89.1% QoQ). Non-SEZ portfolio is ~97% leased. For DLF’s underconstruction projects of 5.3msf across Gurgaon and Chennai, pre-leasing is almost 89%. DLF is bringing forward it new supply which is expected to break ground in next quarter. Physical occupancy continues to improve, Global captives are driving both expansion and new space demand. 

Retain BUY; top pick within coverage: 

DLF’s collections were the highest ever at Rs22.8bnbn, OCF margins of 52%, and net cashflow of Rs2bn despite payment of Rs9.5bn as dividend. DLF remains uniquely positioned with ~115msf of land bank in NCR (Gurgaon and Delhi), which is witnessing strong pricing and demand tailwinds, and poses upside risk to analysts of IIFL Capital Services pre-sales and NAV valuation. Re-iterate BUY with Rs600 TP.