Analyst Corner – DLF: Maintain ‘add’ with revised FY22 SoTP-based TP of Rs 434

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November 03, 2021 1:00 AM

Key risks to our rating are continued weakness in office leasing and slowdown in residential demand.

DLF’s net debt (ex-DCCDL) declined QoQ by Rs7.5 billion to Rs39.9 billion on the back of strong customer collections of Rs14.0 billion for the quarter vs. usual run-rate of Rs 6-8 billion.DLF’s net debt (ex-DCCDL) declined QoQ by Rs7.5 billion to Rs39.9 billion on the back of strong customer collections of Rs14.0 billion for the quarter vs. usual run-rate of Rs 6-8 billion.

DLF’s Q2FY22 net residential sales bookings of Rs15.1billion were up 49% QoQ and surprised positively (Isec estimate of Rs9.8billion) driven by record sales in the Camellias super-luxury project of Rs10.4 billion. With 7.7msf of residential launches lined up in H2FY22E, we expect DLF to clock over Rs50billion of annual sales bookings in FY22E and beyond. We expect DCCDL to clock rental ebitda of Rs34.0billion in FY22E and Rs 40.5billion in FY23E. We maintain our ‘add’ rating on DLF with a revised FY22 SoTP-based target price of Rs434/share (Rs355 earlier) as we assume higher residential sales bookings over FY22-24E and incorporate land bank valuation adjustments. Key risks to our rating are continued weakness in office leasing and slowdown in residential demand.

Residential sales deliver significant performance beat: The company clocked net residential sales bookings of Rs15.1 billion in Q2FY22 (Isec estimate of Rs9.8 billion) vs. Rs10.1 billion in Q1FY22 as the Camellias super-luxury project in Gurugram achieved Rs10.4 billion of sales bookings across 34 units (the project had achieved Rs3.3 billion of sales in Q1FY22 and Rs3.2 billion of sales in Q4FY21). The company attributes this to the earlier pipeline of enquiries converting into actual sales and recent price hike of Rs5,000/psf in the project. With the company intending to launch new projects of 7.7.msf in H2FY22E and continued traction in Camellias sales (expect quarterly run-rate of at least Rs5billion), we expect DLF to now maintain an annual sales booking run-rate of over Rs50 billion annually from FY22E onwards vs. historical levels of Rs20-25billion.

DLF’s net debt declines QoQ, liquidity position comfortable:

DLF’s net debt (ex-DCCDL) declined QoQ by Rs7.5 billion to Rs39.9 billion on the back of strong customer collections of Rs14.0 billion for the quarter vs. usual run-rate of Rs 6-8 billion. The company is targeting further reduction in debt levels over H2FY22-23E on the back of improved operating surplus from devco business and a structural reduction in cash overheads (down 41% YoY in FY21) and lower interest costs.

Rental business delivers resilient performance: DCCDL delivered a resilient Q2FY22 performance with rental collections of 100% and rental ebitda of Rs8.3 billion (increase of 7% QoQ) on account of reduced mall rental waivers and office portfolio occupancy remaining flat QoQ at 86%. In Q2FY22, DLF achieved contractual rental escalations of 11% on 2msf of area and expects escalations of 14% on 4msf of area for the remainder of FY22. The company remains confident of a strong leasing pickup from FY23E and we model for DCCDL rental ebitda of Rs34.0 billion in FY22E and Rs40.5 billion in FY23E.

Valuations: We maintain our ‘add’ rating on DLF with a revised FY22 SoTP-based target price of Rs434/share (Rs355 earlier) as we assume higher residential sales bookings over FY22-24E and incorporate land bank valuation adjustments.

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