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Lack of launches dents presales momentum Strong launch pipeline for 2HFY25 to help achieve guidance

* DLF reported weak pre-sales bookings of INR7b in 2QFY25 due to the lack of launches amid approval delays. The company sustains momentum in its ultraluxury project, The Camellias, in DLF 5, with bookings of INR1.8b.

* With the balance inventory of INR21b, launches will be key to driving its pre-sales growth. DLF received approvals for ‘The Dahlias’ in the first week of Oct’24 and is in the pre-launch stage. DLF aims to launch INR410b worth of projects across its core markets (up INR50b vs. 4QFY24), which would lead to 23% YoY pre-sales growth in FY25. Beyond FY25, the company has set a project pipeline worth INR635b to be launched over 2-3 years.

* Cash flow performance: Collections was flat YoY in 2QFY25 at INR24b. Therefore, OCF was also flat YoY at INR12b, which led to a shortfall of INR650m, after INR240m of land payment. The balance sheet still remains strong with a net cash position of INR28b.

* P&L performance: Revenue growth came in healthy at 47% YoY to INR19.8b. While gross margin fell by 12pp YoY to 45%, EBITDA margin contracted 9pp due to a 66% YoY jump in other expenses on account of a big launch. PAT, including INR3b of JV income, surged 122% YoY to INR13.8b due to the reversal of deferred tax liabilities of INR6b.

DCCDL: Rental run rate to ramp up to INR60b by FY26-end

* Rental income in DCCDL’s commercial portfolio grew 13% YoY to INR16.5b, led by the completion of the 1.3msf Downtown Chennai asset and 40bp rise in occupancy, which led to a 12% YoY increase in office rental income. The retail portfolio also continued its momentum and reported 4% growth in rental income. Total revenue stood at INR16b, up 6% QoQ.

* Occupancy across non-SEZ/SEZ portfolios remained flat QoQ at 97%/86%. The retail portfolio was almost fully leased with 98% occupancy, except City Centre CHD.

* Further, 3.1msf is under construction across its existing assets in Gurugram and Chennai and is 85% pre-leased including the hard option. When this is delivered by 1HCY25, exit rentals are likely to rise to INR64b.

Key takeaways from the management interaction

Residential business:

* Approvals and launches: Goa, Mumbai and the next phase of Privana are in different stages of approval, while DLF is confident of launching its Mumbai project in 4QFY25. Privana phase-3 would be launched in 4QFY25 and IREO after 1QFY26 (surely in FY26).

* Received approvals for ‘The Dahlias’ in the first week of Oct’24. With ‘The Dahlias’ launch, DLF is confident of achieving pre-sales guidance of INR170b.

* As per the RERA filing, ‘The Dahlias’ has total revenue potential of INR260b with +70% gross margins. This potential may grow as sales begin.

* The Dahlias is a luxury benchmark in the world, with 4mtrs floor-to-ceiling height, 17ft decks, 1,0300sft minimum size of apartment and 0.45msf of club (2.5x of Camallias), and it is receiving interest across India as well as across the globe.

* Privana phase-3 is expected to see demand from American Express employees who recently shifted in the peripheral areas.

* For the Mumbai project, the total potential saleable area can go beyond 5msf.

* From One Midtown, P&L and cashflow should come in from 3QFY25.

* NRI business rose from 3% to 28% currently, which is a result of excellent products and services.

* Business development (BD): Currently, DLF focuses only on NCR, Tri-City and MMR. In the next two years, Gurugram is going to witness another three Crest like launches. Additionally, Privana phase 4/5 will also be launched, which will require the management’s bandwidth; hence, there is little scope to do BD apart from these geographies.

Commercial Business:

* For FY25, DCCDL should achieve ~INR50b rental revenue and should add another ~INR3b from DLF, which tallies to INR53b. For FY26, the company expects to garner annuity income of ~INR54b from DCCDL and ~INR10b from DLF, so exit rental income should be INR64b.

* Stiff increased in DLF annuity because most of the asset commissioning is currently in DLF by FY26 (three malls, Atrium place in Hines). DLF is expected to achieve EBITDA of INR10bn, with DLF’s share of INR8b.

* Downtown (DT) Gurugram: DT 4’s OC is expected in 3QFY25 and rentals will commence from May/Jun’25, which is fully leased now. Excavation work at the Mall of India Gurugram (2.1msf) and other office blocks is done and civil construction will commence from Dec’24/Jan’25 and should take 36-39 months for commissioning.

* Downtown Chennai: Downtown-3 (1.1msf) is expected to receive OC by Dec’24/Jan’25. Rentals to commence by May/Jun’25, while construction for Downtown 4&5 (3.6msf) has already commenced in Jul’24 and should take ~36 months for commissioning.

* Atrium place: Rentals for 2.1msf Phase-1 will start from May/Jun’25, which will give rentals for 9-10 months. And the next tower (1msf) is slated to be completed in Dec’25, for which rental will start from May/Jun’26.

Valuation and view: We upgrade to BUY with a revised TP of INR925

* DLF continued to enhance its growth visibility as it replenishes its launches with its existing vast land reserves. However, our assumption of a 12-13-year monetization timeline for its remaining 160msf of land bank (including TOD potential) adequately incorporates this growth.

* We have accelerated the sales velocity for some of projects and made mark-tomarket changes to average price realization, which results in higher cashflow generation as well as moves up the land value. DLF (Devco and DLF commercial) business is valued at INR1,641b, wherein land contributes INR1,233b, and DCCDL valued at INR708b. Gross NAV comes out to be INR2,349b, which after net debt of INR63b (incl. DCCDL), comes out to be INR2,285b. We upgrade to BUY with a revised TP of INR925.

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