New launch trajectory key driver for DLF, buy on dips, say experts

Residential demand remains strong, commercial portfolio may lag in near term

Riding on the back of a new launch, bookings or new sales growth for the country’s largest listed developer nearly doubled YoY in the December quarter (Q3FY22). About a third of the Rs 2,020 crore sales in the quarter was contributed by the One Midtown project in Delhi which was launched in December. The project is a joint venture between DLF and Singapore’s sovereign wealth fund, GIC. The rest of the sales came from ongoing luxury project Camellias (Gurgaon), new products and demand for independent floors.

In addition to higher bookings, collections too remained healthy at Rs 1,220 crore up over 89 per cent as compared to the year ago quarter. This is significantly higher than the earlier run rate of Rs 600 crore to Rs 800 crore. The higher collections enabled the company to bring down its debt in the quarter by 770 crore to Rs 3,220 crore with debt to equity at 0.09 times for the development (residential) vertical.

 sales in the quarter led by the new launch success has led to a revision of the FY22 sales guidance from Rs 4,000 crore at the start of the year to Rs 6,000 crore-Rs 6,500 crore now. Adhidev Chattopadhyay of ICICI Securities has pegged the sales from the residential portfolio in FY22 at Rs 6,640 while he expects the company to top Rs 7,000 crore mark each in FY23 and FY24.

Healthy demand is also leading to pricing power with the company increasing prices for Camellias by Rs 5,000 per square feet and is contemplating further 10-15 per cent hikes for the launch of the next tower of the Midtown project. The company has raised prices at Camellias by 20 per cent over the past year. Given the rise in prices and improved realisations the company has increased the sales potential of 35 million square feet of new launches from Rs 36,000-Rs 40,000 crore to Rs 47,000 crore. The company has so far launched 8 million of the 35 million square feet launch pipeline.

While residential demand remains robust, the street will keenly watch the progress on the rental business which has been impacted by the lockdowns and restrictions. The rise of infections over the last month has impacted business delaying return-to-office plans of corporates. Rental collections in the quarter were strong with operating profit for the segment increasing 6 per cent sequentially on lower rental waivers and steady office portfolio occupancy at 86 per cent. Analysts at Kotak Institutional Equities believe that the commercial portfolio is also on a path to earnings recovery with occupancy for office portfolio inching up and retail consumption picking up.

Stock trigger going ahead will be new launches and response to the same. Current prices are close to the net asset value/targets of brokerages such as Kotak Securities and ICICI Securities. Investors can consider the stock, which is trading at over 47 times its FY23 earnings, on dips.