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Strong pipeline across key segments

DLF FY22 annual report highlights a) Target to deliver double digit growth in residential bookings in FY23 b) Aggressive expansion in office segment and aim to double retail portfolio in 4-5 years and c) Sustained improvement in cash flows.

Takeaways from director’s letter – Scaling up across segments

* Housing segment continues to witness strong demand well supported by tailwinds from the fundamental demand drivers.

* Consolidation amongst larger and credible brands continues to be a key trend in the housing segment primarily driven by rising confidence towards developers will strong execution legacy.

*  In FY22, DLF’s pre-sales increased 136% to INR72b driven by strong response to Camellias and new products (especially independent floors) and its identified launch pipeline will help it sustain the momentum.

* Company continue to maintain positive outlook for rental business and is consequently deploying capital to strengthen and grow the office portfolio (developing 5.3msf across Gurugram and Chennai).

* Given the recovery across the retail segment and consumption trends in our country, DLF has also initiated development of new set of malls across geographies with an aim to double retail presence in the next 4-5 years.

* In line with the growth plans, DLF has stepped up organizational capabilities by onboarding new function heads and has also strengthened project management and sales team to ensure strong execution.

Healthy project pipeline

* DLF’s pre-sales in FY22 came in at INR73b which was up 136% YoY and was highest ever in last 10 years. Ultra-luxury Camellias project contributed INR25b while 6msf of new launches accounted for INR47b of pre-sales.

* For FY23, company expects to grow its pre-sales to INR80b primarily driven by 7.6msf launch which includes a new phase at Independent floors and One Mid town.

* Outside of NCR company will also focus on markets like Goa (retail and a residential project) along with launches in Chennai and Tri-city, Chandigarh.

* The launch pipeline for FY23 include: i) 3msf of aspirational homes across Gurugram, Tricity (Chandigarh) and Chennai; ii) 3.3msf of Premium/Luxury projects; and iii) 1.1msf of Commercial development in DLF5/New Delhi.

* Company will also launch plotted development project at DLF 5 having GDV of INR17-20b.

Key Financial highlights – deleveraging plans on track

* P&L highlights: Topline grew by 6% YoY to INR54b driven by higher possessions in Camellias project. MDL’s EBITDA stood at INR20.5b, up 44% YoY on account of 10ppts expansion in margins to 36%. Income from JV (DCCDL) stood at INR6.5b, up 7% YoY and reported PAT of INR18b up 65% over FY21.

* Debt: Gross debt of INR41b include: LT borrowings amounting to INR24b and ST borrowings of INR17b.

*  Liquidity: In addition to cash and bank balance of INR9b, MDL also has liquid investments amounting to INR3b. Thus resulting in a net debt of INR27b.

Valuation and view

* While we remain confident about the growth trajectory in both its Residential as well as Commercial business, a large part of it already seems priced into valuation. Thus, the implied value of land remains the only key metric for a further upside in the stock.

* At current valuations, the surplus land in DLFU and DCCDL is valued at INR480b, which is in line with our estimated value, assuming a development timeline of 20 years for DLFU’s 151msf and 11 years for DCCDL’s 25msf, which is fair in our view.

* Maintain NEUTRAL with TP of INR385, implying an downside potential of 3%

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