Outlook positive for DLF after strong Q1 performance despite lockdown

While residential portfolio is strong, commercial assets may take time to recover

Despite the impact of the lockdown in Q1FY22, DLF posted a resilient performance maintaining the momentum in sales bookings. Aided by new product sales of Rs 542 crore including sales of independent floors, the company reported bookings of Rs 1,014 crore, the third consecutive quarter of sales crossing the Rs 1,000 crore mark.

In addition to new products, a majority of the sales (Rs 330 crore) were on account of sales of its existing inventory at Camellias project at Gurgaon. The company indicated healthy sales of inventory in this project with 2.4 million square feet sold out of a total of 3.6 million square feet.  

Demand for residential property continued to be strong as sales in the June quarter which was impacted by the lockdown was only marginally lower than the Rs 1,058 crore of bookings in the March quarter. With a pipeline of over 8 million square feet to be launched in FY22, the company is expected to cross the Rs 4,000 crore mark in bookings in the current financial year. Says Sourabh Taparia of UBS, “We expect DLF to report 4,500 crore to Rs 6,500 crore in gross pre-sales over FY22-24 driven by its pipeline of launches across markets/locations. This implies pre sales would more than double over the next three years from levels in FY21.”

While residential sales outlook is expected to be strong, the commercial portfolio is under pressure. Given the mall rental waivers and fall in office occupancies, operating profit of DLF Cyber City Developers (DCCDL) declined by 4 per cent sequentially in the June quarter. Office portfolio occupancies declined by 2 per cent q-o-q to 86 per cent. While collections have remained steady at 99 per cent, delay in leasing decisions and demand could impact office rentals over the next few quarters. Though retail footfalls have improved in June and are at 50 per cent of pre-Covid levels, the pace of recovery/rental concessions are key for improved profitability. ICICI Securities has a buy rating on the company and expects DCCDL to clock operating profit of Rs 3,560 crore in FY22 and Rs 4,070 crore in FY23.

While the stock gained about a per cent on Tuesday and hit its 52-week high, there could be further upside given robust residential demand, large land bank and hope of demand recovery in the commercial segment. Investors can consider  the stock on dips.