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Buy DLF Ltd For Target Rs.303

DLF achieved strong operational improvement in Q3FY21 across segments with Rs10.2bn of net residential sales bookings and 14% QoQ increase in DCCDL rental income to Rs8.2bn on account of recovery in mall rentals. DLF’s net debt (ex-DCCDL) declined marginally by Rs1.2bn QoQ to Rs51.0bn on account of reduction in overheads and interest costs. DLF is comfortably positioned with Rs13bn of cash reserves and low net D/E of 0.2x. With 9msf of residential launches lined up in H2FY21-FY22E, DLF is targeting annual sales bookings of at least Rs40bn in FY22-23E. We expect DCCDL to clock an exit rental income of Rs37bn by March 2021 and Rs40bn by March 2022. We retain our BUY rating with a revised target price of Rs303/share (earlier Rs240) as we assume faster monetisation of residential projects and roll forward our DCF based SOTP valuation to March 2022.

* Sales momentum picks up, strong launch pipeline: DLF clocked Q3FY21 net sales bookings of Rs10.2bn on the back of strong response to launch of independent floors/plots in Gurugram which contributed Rs3.5bn of sales along with Camellias project (11 units sold for Rs2.8bn) and balance sales from national devco/other projects of Rs3.9bn. DLF has outlined a long-term plan to launch and develop ~35msf of projects having potential sale value of Rs360-400bn. Of this, DLF intends to launch ~8.6msf over the next 18 months (H2FY21-FY22E) across plots/midincome housing/independent floors in Gurugram, Chandigarh and New Delhi in a phased manner. For FY222-23E, DLF is targeting an annual booking run-rate of at least Rs40bn vs. pre-Covid levels of Rs20-25bn on the back of new launches.

* DLF’s net debt marginally declines QoQ, liquidity position comfortable: DLF’s net debt (ex-DCCDL) declined marginally QoQ by Rs1.2bn to Rs51.0bn on account of tight control on corporate overheads and reduction in interest costs. DLF (exDCCDL) currently has Rs13bn of cash reserves and is targeting to keep the net debt levels flat in Q4FY21E.

* Rental business collections strong in offices: In Q3FY21, DCCDL achieved rental income of Rs8.2bn (up 14% QoQ). Offices, which contribute over 80% of the rental income saw strong collections of 98% in Q3FY21 at Rs7.2bn. Mall rental income for Q3FY21 stood at Rs1.0bn (up 87% QoQ) and DLF expects to collect ~Rs3.0bn of mall rentals in FY21 overall (expected YoY decline of 45-50%) and expects rentals to recover to pre-Covid levels from Q1FY22. DCCDL continues with its plans to keep itself ready for a possible REIT listing in the medium term.

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