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Juggernaut rolls on, traction across asset classes

DLF Limited reported yet another strong quarter as the residential business continued to perform well with INR 20.41bn of bookings (+101% YoY; down 25% QoQ on a very high launch base). For FY23, DLF has a guidance of INR 80bn worth of booking values and remains well on track to exceed (JMFe: INR 86bn) with steady launches of INR 20-25bn every quarter. In the annuity business, DCCDL portfolio will continue to show uptick in the coming quarters led by i) recovery in mall rentals, ii) ramp-up of Downtown Gurgaon rentals and iii) improving occupancy and is likely to have exit rentals of INR 43 / 49bn for FY23 / FY24. On the DCCDL REIT listing front, the DLF and GIC Singapore (2 shareholders) are yet to decide the final timelines as they believe that the portfolio has significant developmental potential left (unlike other REITs). We continue to like DLF’s strong market positioning in a fast rebounding Delhi NCR market and as the cycle progresses further, DLF with its steady annuity cash flows and fully paid-up land banks remains extremely well placed to scale up across segments. We tweak estimates for FY23 / FY24 factoring in higher scale-up costs. Maintain ‘BUY’ with a Mar’23 TP of INR 450 (implying 17% upside).

* Residential sales led by new products: In 1QFY23, DLF achieved sales booking of INR 20.41bn (+101 YoY; down 25% QoQ) backed by a combination of new products (INR 9.47bn), Midtown (INR 5.87bn) and Camellias (INR 3.52bn) and balance from National Devco / Rest of Gurgaon. Camellias is now left with INR 19.96bn of RTM inventory. New product sales included (Independent floors/Plots/SCOs: INR 8.48bn and Parc estate, Chennai: INR 0.97bn). DLF management continues to witness sustained demand momentum for its products and is keeping a watchful eye on supply / interest rates / inflationary trends. Presently, price hikes are being passed on to the customer and the sales volumes continue to be healthy across regions / products for DLF. It remains on a steady growth path and plans to launch INR 20-25bn worth of inventory every quarter in FY23 (plazas at DLF Phase V and Midtown, plots at Phase V and Goa)

* DCCDL on track to hit INR 43bn exit rentals: DCCDL office rentals came in at INR 7.59bn (+4% YoY; +2% QoQ) while retail has strongly come back at INR 1.67bn (+293% YoY and +34% QoQ). EBITDA for DCCDL came in at INR 9.61bn (+18% YoY: +7% QoQ) on account of higher retail income. Occupancies in the office segment remained at c.88% (88% in 4QFY22) while occupancy in retail segment stood at 98%. Footfalls stood at 90% of pre-Covid levels. The under construction asset, Downtown Gurgaon has received OC on 1.7msf of area and rentals (INR 116psf) are expected to start from Oct’22.

* Reported financials: Revenue recognised increased to INR 14.1bn in 1QFY23 (+27% YoY; down 7% QoQ) while EBITDA came in at INR 4.1bn (+5% YoY; +13% QoQ) and PAT was INR 4.69bn (+39% YoY; +16% QoQ). EBITDA margins came in at 28.7% (down 601bps YoY; +494bps QoQ) on account of higher other expenses / employee expenses (+65% YoY/ +69% YoY; scale-up costs). Gross margins were stable at 53% on a YoY basis.

* Maintain ‘BUY’; Mar’23 TP of INR 450: DLF with its steady annuity cash flows and fully paid-up land banks remains extremely well placed to scale up across segments. We maintain ‘BUY’ with a Mar’23 TP of INR 450. Key risks: slowdown in residential segmen

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