Buy DLF Ltd for the Target Rs.780 by Motilal Oswal Financial Services Ltd
New launches expected to drive presales Beat on presales, driven by new launches
In 2QFY27, DLF’s presales declined 12% YoY to INR38.0b, but were much higher than our estimates of INR26b, driven by the complete sell-out of the new project — The Aureva, Gurugram (INR19b) — and sustenance sales from The Dahlias (INR18b). In 1HFY27, the company’s sales stood at INR44.6b, down 72% YoY. Over the medium term, DLF has a launch pipeline of ~INR582b, which includes two major launches earmarked for FY27 — Westpark P-2 in Mumbai and Magnolias P-2 (DLF Phase IV). Further, out of the projects already launched, DLF has a balance inventory worth ~INR150b, which is likely to support presales in the upcoming quarters. Based on its launch plans, we expect a 2% presales CAGR, reaching INR209b over FY26-28.
Occupancy remains high in the annuity portfolio
DCCDL’s rental income in 2QFY27 increased 9% YoY to INR14.8b, driven by steady growth across the portfolio (DLF + DCCDL + Atrium rentals at INR17.0b). Overall occupancy in the office portfolio stood at a record 96% (99% nonSEZ/91% SEZ), while retail occupancy stood at 97%. DCCDL’s net debt increased by INR2.8b QoQ to INR184b.
DLF's Rentco portfolio is expected to achieve exit rentals of INR7.5b (annualized), excluding Atrium, while DCCDL's exit rentals are expected at ~INR68b. The recent commissioning of Summit Plaza and Midtown Plaza, along with the expected commissioning of Promenade Goa at the end of 3QFY27, should support incremental rental income. We expect rental income of INR71b/INR79b in FY27/28.
Strong cash generation; balance sheet remains sturdy
Residential collections inched up 3% YoY to INR26b, in line. DLF generated operating cashflows of INR18.6b. Consequently, despite a dividend outflow of INR19.8b, the decline in net cash was contained at INR150.8b (70% in RERA accounts), which was INR1.2b lower QoQ. DCCDL’s net debt increased by INR2.8b QoQ to INR184b, with a net debt-to-GAV ratio of 0.18x. Cost of debt improved to 7.04% from 7.14% in 1QFY27.
Financials
DLF’s 2QFY27 revenue declined 23% YoY to INR12.6b, while EBITDA dipped 92% YoY to INR230m. EBITDA margin was muted at 1.8%, sharply lower than our estimate. Adj. PAT rose 38% YoY to INR13b, driven by a one-time revaluation gain worth INR7.4b on an investment recognized under other income. Excluding this, PAT was much lower than expected. Out of the inventory launched until 2QFY27, the company has a surplus cash potential of ~INR425b. It also has a residual gross margin of INR395b yet to be recognized.
DLF’s 1HFY27 revenue declined 42% YoY to INR25.4b, while EBITDA fell 73% YoY to INR1.7b. EBITDA margin stood at 6.8%. Adj. PAT increased 23% YoY to INR21b.
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. We therefore believe the company’s valuation at 0% NAV premium is justified. We marginally raise the WACC for the residential portfolio to 11.0% (10.8% earlier) and widen the cap rate to 8.0% (from 7.5%) to value the commercial portfolio. However, since we roll over the valuation to FY28 for residential portfolio, the TP has increased to INR780. We reiterate our BUY rating.
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