DLF: Investors should await total biz recovery before considering stock

With the Cyber Park project rents commencing, expect the growth on the rental front to remain steady

The DLF stock has gained 4 per cent in trade after it posted better-than-expected collections and bookings in the residential segment and recovery in the commercial space in Q2. Besides sales growth, steady debt levels and plans to list its commercial assets were among the reasons for the gains. 

The performance in the September quarter was led by an 18 per cent growth in bookings over the year-ago quarter and a 63 per cent rise in collections. Analysts at Kotak Institutional Equities highlighted that new bookings at Rs 853 crore were higher than the pre-Covid run rate of Rs 700 crore. 

The sales in the quarter were led by traction in its super-luxury project Camellias with sales of Rs 300 crore. What aided overall growth was the sale of a building to American Express for Rs 380 crore. With higher enquiries, the company expects to end the second half of FY21 with bookings of Rs 1,500 crore.  

For commercial assets, though rentals were down year-on-year (YoY), they improved on a sequential basis — growth of 12 per cent. Office rentals were higher, but overall revenues and earnings were muted because of the rent waivers given during the pandemic restrictions. With the Cyber Park project rents commencing, analysts expect growth on the rental front to remain steady.   

In addition to the premium segment and existing projects, what may aid sales growth are new launches in the residential segment. The company is focusing on the mid-income housing projects with a pipeline of 10 million square feet and sales potential of Rs 5,000 crore, to be launched in phases starting in the first half of FY22. 

The listing of the commercial assets under DLF Cyber City Developers over the next year and a half is a key event going ahead. The listing of the rental assets as real estate investment trust should, according to JM Financial, help reduce the debt of Rs 18,000 crore, expand the business, and get a fair market value for rental assets. 

While these developments, especially in the residential segment, are a positive, commercial assets may see some pressure due to the pandemic, both in office and mall rentals. Investors should await a full-fledged recovery in this business before considering exposure to the stock.