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Strong show in challenging quarter

DLF achieved strong operational performance in Q1FY22 in a challenging quarter with net residential sales bookings of Rs10.1bn (Rs10.6bn in Q4FY21 and Rs1.5bn in Q1FY21) driven by new product sales of Rs5.4bn. DCCDL’s Q1FY22 EBITDA declined just 4% QoQ in spite of mall rental waivers and a 2% QoQ fall in office occupancies to 86%. With 8.3msf of residential launches lined up in FY22E, DLF is targeting annual sales bookings of at least Rs40bn in FY22E.

We expect DCCDL to clock rental EBITDA of Rs35.6bn in FY22E and Rs 40.7bn in FY23E. We maintain our ADD rating on DLF with a revised FY22 SoTP based target price of Rs355/share (Rs339 earlier) factoring in balance sheet and land bank valuation adjustments. Key risks to our rating are continued weakness in office leasing and slowdown in residential demand.

* Sales momentum sustains in a challenging quarter:

In spite of the impact of the second Covid wave in North India during the quarter, the company clocked net sales bookings of Rs10.1bn in Q1FY22 vs. Q4FY21 bookings of Rs10.6bn and Q1FY21 bookings of just Rs1.5bn. The quarter’s sales were driven by Rs3.3bn of sales from Camellias (Rs3.2bn of sales in Q4FY21), Rs1.4bn from national devco/new Gurugram and Rs5.4bn from new product launches (independent floors in DLF City/New Gurugram). The company intends to launch new projects of 8.3msf in FY22E and is targeting an annual booking run-rate of at least Rs40bn vs. pre-Covid levels of Rs20-25bn on the back of new launches along with completed inventory worth Rs51.8bn as of Jun’21.

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

DLF’s net debt (exDCCDL) declined QoQ by Rs1.4bn to Rs47.4bn vs. an overall reduction of Rs3.8bn in FY21. The company is targeting further reduction in debt levels over FY22-23E 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 Q1FY22 performance with rental collections of 99% and rental EBITDA of Rs7.8bn (decline of 4% QoQ) even as a 2% QoQ fall in office portfolio occupancy to 86% on account of lease expiries/exits and mall rental waivers impacted earnings. In Q1FY22, DLF achieved contractual rental escalations of 13% on 1msf of area and expects escalations of 14% on 6msf 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 Rs35.6bn in FY22E and Rs40.7bn in FY23E.

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