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Exploring possible blue-sky scenarios

DLF Limited continues to offer a lot of visibility backed by i) broad-based momentum in the residential business, ii) significant expansion plans in DCCDL, iii) monetisation of land banks, and iv) a possible REIT listing. Given the detailed plans laid out by DLF at its recent analyst meet, we try and estimate a possible blue-sky scenario for the company. Possible triggers for the stock include i) substantial business development in the residential business (especially MMR / Noida), ii) firming up of capex plans with respect to 11msf development (DCCDL) in Gurgaon (4msf of DLF Downtown offices + 3msf Mall of India + 4msf of other offices), and iii) guidance on the positive impact of transit oriented development (TOD) / Transferable Development Rights (TDR) policy on the company’s land bank value (DLF benefits from higher developmental potential as well as the option to get more potential in high value areas by offering land in lower value areas). We continue to like DLF’s strong market positioning backed by steady annuity cash flows and fully paid-up land banks, and feel that it remains extremely well placed to scale up across segments. We maintain ‘BUY’ with a Mar’23 TP of INR 450 (implying 34% upside). Key risks: slowdown in residential / commercial segment.

Double-digit growth in booking values expected in FY23: DLF is guiding for double-digit sales growth, thus broadly indicating at least INR 80bn of bookings in FY23 (JMF estimates: INR 81bn for FY23). In FY22, the company had managed to outperform its initial guidance of INR 40bn by a substantial margin (INR 72.73bn). From DLF’s end, residential launch approvals are largely in place as it looks to launch inventory worth c.INR 80-90bn in FY23; it already has unsold inventory of INR 75bn. Moreover, the company is actively looking at opportunistic acquisitions in MMR and Noida that can possibly lead to further NAV accretion but is focusing on Delhi NCR, Chennai, and Chandigarh Tricity.

Significant outlay on malls and offices in Gurgaon: DLF is embarking on a significant developmental pipeline of c.11msf at a single location (4msf of DLF Downtown offices + 3msf Mall of India + 4msf of other offices). Currently, these are classified as land bank in our DCCDL valuations, and given the clear development pipeline and high likelihood of execution the mall itself can potentially add INR 6bn of annuity rentals (assuming 3msf Mall of India; INR 175psf; 95% occupancy; starting FY28) translating into c.30% yield on the construction value. Even on the office front, the return ratios tend to be in a similar range and DLF can continue to opportunistically increase leasing / construction of offices

Entitled to potentially double New Gurgaon land banks: The transit-oriented development (TOD) policy focuses on developing parts of Gurgaon and New Gurgaon. With this, DLF can potentially increase the Floor Area Ratio (FAR) upto 5x (presently: 1.75x for residential and commercial and 2.5x for IT parks). Moreover, the TDR policy allows DLF to offer land to the government and get higher FAR in other areas like DLF Phase V / Phase 3 (c.2-3x of New Gurgaon pricing) thus providing it developmental flexibility.

Maintain BUY; Mar’23 TP of 450: We continue to like DLF’s strong market positioning especially in the fast-rebounding Delhi NCR market, and as the cycle elongates it will continue to scale up across segments and regions. We maintain ‘BUY’ with a Mar’23 TP of INR 450. Key risks: slowdown in residential / commercial segment.

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