Buy DLF Ltd for the Target Rs 755 by Motilal Oswal Financial Services Ltd
Upcoming launches to likely revive pre-sales Very low pre-sales; expected to improve in the coming quarters
In 1QFY27, pre-sales at INR6.6b (-94% YoY) were very weak due to the impact of deferred launches (56% below estimates). Overall, it has a launch pipeline of ~INR200b in FY27, comprising major launches in DLF City (INR80-90b potential), Arbour Senior Living, Westpark P-2, and the Goa project. Overall, DLF has a healthy launch pipeline of INR602b over the medium-term. Further, out the projects already launched, DLF has a balance inventory worth INR124b, which is likely to support pre-sales in the upcoming quarters. On the basis of launch plans, we expect a muted 2% CAGR in pre-sales to INR209b in FY26-28E.
Healthy traction in the leasing portfolio
DCCDL’s rental income in 1QFY27 increased 9% YoY to INR14.4b, driven by steady growth across the portfolio (DLF + DCCDL + Atrium rentals @INR16.3b). Overall occupancy in the office portfolio was 95% (98% non-SEZ/89% SEZ), while retail occupancy stood at 97%. DCCDL’s net debt fell by INR140m QoQ to INR181b. Atrium Place is fully leased, with occupancy certificates received for three towers; final tower OC expected in the coming quarter
Execution at the retail developments is progressing well – Midtown Plaza (97% leased; operational), Summit Plaza (~97% leased; expected in Jul’26), and Promenade Goa (64% leased; expected to improve to 85-90% in the next 6-8 weeks). DLF expects existing assets to deliver ~10-11% rental growth in FY27, excluding incremental contribution from new assets. It expects FY27-exit rentals at ~INR73-75b, whereas the ongoing and planned asset additions would lead to rental income increasing to INR100b over the medium term. We tweak our rental income estimates and now expect INR71b/INR79b in FY27E/28E
Strong cash generation; balance sheet remains sturdy
Residential collections declined 11% YoY to INR24.1b and DLF generated surplus cash of INR10.5b. As a result, its net cash position improved to INR152b in 1QFY27. In the DCCDL portfolio, net debt declined to INR181b from INR182b in 4QFY26, with a net debt-to-GAV ratio of 0.18x. Cost of debt inched up to 7.14% from 7.08% in 4QFY26.
Financials
1Q revenue declined 53% YoY to INR12.8b, while EBITDA fell 59% YoY to INR1.5b. EBITDA margin stood at 11.7%. PAT increased 4% YoY to INR7.9b. Net cash position improved by INR10.5b QoQ to INR152b. Out of the inventory launched till 1QFY27, the company has a surplus cash potential of ~INR438b. It also has a residual gross margin of INR390b yet to be recognized.
Valuation and view
We value DLF at its NAV and currently do not assign a growth premium to it since the potential of its sizable landbank is already getting captured in our estimates. Further, delta to valuations would come via new project additions in MMR and/or other markets. Hence, we believe the company’s valuation at 0% NAV premium is justified. We value the commercial portfolio at 7.5% cap rate. We maintain a BUY rating with a TP of INR755.
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