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Reiterates pre-sales guidance of INR130b with upside bias

All key launches to materialize in 2H

* DLF reported bookings of INR22.3b in 2QFY24, up 9% YoY/QoQ and 13% above our estimate. In the absence of big-ticket launches, sales were largely driven by steady demand across ongoing/completed projects.

* The ultra-luxury project, Camellias, continued to witness strong traction with bookings of INR7.2b. New products accounted for INR13.4b of sales, including INR3.5b from projects launched in 2QFY24.

* Sales could pick up sharply in 2HFY24, aided by a strong launch pipeline of 11msf with GDV of INR190b and inventory of INR42b across ongoing and completed projects.

* Therefore, while DLF guides for pre-sales of INR120-130b in FY24, we expect bookings of INR150b with an upside bias as we expect a better response to its luxury project, Crest II.

* Cash flow performance – Collections surged 88% YoY and 50% QoQ to INR23.6b. After construction costs and overheads, DLF generated a surplus of INR11.5b and utilized INR9.9b for dividend payout. It now has net cash of INR1.4b.

* P&L performance – Revenue grew 3% YoY to INR13.5b, 11% below our estimate due to lower-than-expected recognition. EBITDA was up 6% YoY at INR4.6b and PAT increased 30% YoY, aided by a rise in other income and JV profit contribution from DCCDL.

DCCDL: Portfolio occupancy continues to inch up

* Occupancy in DCCDL’s rental portfolio increased by 300bp to 89%, with 0.5msf of leasing in the non-SEZ and SEZ portfolios, each. Non-SEZ portfolio occupancy stood at 97%, while SEZ portfolio reported vacancy of 15% vs. 18% in 1QFY24.

* Rental income increased by 9% YoY to INR10.7b, with retail portfolio rentals up 15% and office rentals up 7% YoY.

* The 5.3msf under-construction Downtown assets in Gurugram and Chennai continue to witness healthy demand as they are now 89% pre-leased vs. 81% in 1QFY24.

* We expect DCCDL’s portfolio to register a CAGR of 13% in rental income over FY23-25 to INR51b. Moreover, we expect the growth trajectory to remain steady for at least 12-15 years, considering the ~24msf development potential in existing assets.

Key takeaways from the management interaction

* Launches: Launches: Key projects like Sector 77 and DLF V are on track for 3Q/4Q launch respectively. New independent floors project in Punchkula and SCO in Gurugram is also expected to be launched in 3Q. While the disclosed pipeline shows limited visibility, company is working three years ahead in terms of new launches

* Cash flows: Collections will scale up to INR65b by FY24 end (INR38b in 1HFY24) and the construction outflow will grow to INR17b (INR12.5b in FY23). A bulk of the INR30b cash balance is tied up in RERA escrow accounts of ongoing projects. As the cash gets released after project deliveries, DLF intends to utilize it for debt repayment and capex.

* Leasing: While the non-SEZ portfolio is largely leased, DLF’s JV with Hines will witness completion in a phased manner in 1QFY25 and the management intends to commence leasing of this asset soon. Additionally, construction at subsequent phases of Downtown assets in Gurugram and Chennai is also expected to start soon.

Valuation and view: Assigned higher TP driven by consistent price growth; Reiterate Neutral

* We keep our pre-sales and rental estimates largely unchanged, with a stable launch pipeline and rental assets on track for timely completion.

* DLF has demonstrated a healthy pricing growth over the last decade in its core markets of Gurugram, New Gurugram, and Delhi. Despite the high base, healthy pricing growth has continued for the last two-three years.

* The company’s customer base has a propensity to afford higher ticket size for quality offering, thereby enabling a high pricing power for DLF.

* Accordingly, we raise our annual price growth assumptions from 3-5% earlier to 8-10% in its core markets and increase the TP to INR585. Reiterate Neutral rating on the stock.

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