DLF has seen strong traction in its residential business with 9MFY22 sales bookings of Rs 45.4 billion driven by the Dec’21 launch of the One Midtown Delhi project. Accordingly, the company has revised its FY22E devco sales guidance to Rs 60-65 billion (earlier Rs 40 billion). With the recent plotted development launch in Chennai, we model for Rs 66.4 billion of FY22E devco sales and over Rs 70 billion each in FY23-24E. Further, with office re-openings and mall consumption picking up, we expect DCCDL’s rental ebitda to grow from Rs 34.0billion in FY22E to Rs 40.5 billion in FY23E. We upgrade our rating to ‘buy’ from ‘add’ with an unchanged Mar’22 SoTP-based target price of Rs 434/share post the 13% stock price correction in the last one month. Key risks are weakness in office leasing and residential demand.
Chennai plotted development launch to drive sales bookings further: The company has recently launched a residential plotted development project in Feb’22 christened “Parc Estate” located off the OMR in Chennai spread over 85 acres and plans to develop 1,500 plots spread over 2.15msf with plot sizes ranging from 600sft to 4,000sft at an estimated price of Rs 3,500/psf or estimated sale value of ~Rs 7.5billion. In the first phase, the company plans to launch 50% of the area or 750 plots having ticket sizes ranging between Rs 2.5 million and Rs 12.5 million.
Residential sales estimated to be over Rs 70billion each in FY23-24E: The company clocked residential sales bookings of Rs 20.2billion in Q3FY22 as the company booked Rs 7.0billion of sales from the One Midtown, New Delhi (50% JV with GIC) launched in Dec’21. The One Midtown project has seen cumulative bookings of Rs 15.0billion till Jan’22 and the company plans to launch the third tower in the project in Q4FY22 having total potential sale value of ~Rs 11billion. At the beginning of FY22E, the company had given FY22E devco sales guidance of ~Rs 40billion and has now revised its FY22 guidance to Rs 60-65 billion owing to the strong response to the Delhi launch.
We model for Rs 66.4billion of FY22E devco sales and over Rs 70billion each in FY23-24E.
Rental business traction to improve from FY23E onwards: DCCDL delivered a resilient Q3FY22 performance with rental EBITDA of Rs 8.7billion (increase of 6% QoQ) on account of reduced mall rental waivers and office portfolio occupancy remaining flat QoQ at 86%. While the Omicron wave led to a slight delay in return-to-office plans, the company remains confident of a strong leasing pickup from FY23E with office portfolio occupancy levels to rise to over 90% in H1FY23. We model for DCCDL rental EBITDA of Rs 34.0 billion in FY22E and Rs 40.5billion in FY23E.
The company’s plans to ready itself for a possible REIT listing of DCCDL remain on track.
Valuations: We upgrade our rating to ‘buy’ from ‘add’ with an unchanged Mar’22 SoTP-based target price of Rs 434/share post 13% stock price correction in the last one month.
Key risks to our investment thesis are a slowdown in residential demand in the NCR region and impact of work-from-home on leasing business resulting in higher-than-expected vacancies and decline in rentals.