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Pre-sales exceed INR130b guidance with highest ever quarterly sales

-      DLF reported its highest-ever pre-sales of INR90.5b in 3QFY4, up 4x YoY/QoQ and 21% above our estimate. The strong performance was driven by three new launches during the quarter, which contributed over INR86b to overall bookings. For 9MFY24, bookings stood at INR133b, doubled YoY, and exceeded the company’s full-year guidance of INR130b.

-      The company launched the first phase of DLF Privana, Gurugram, which was sold out within 72 hours of launch and clocked bookings of over INR72b. Other launches in Gurugram and Panchkula contributed INR14b of pre-sales.

-      In the absence of any new launches, we expect DLF to end FY24 with flat pre-sales of INR154b. However, with projects worth over INR700b slated for launch over the next two-three years, we expect DLF to report a 27% CAGR in pre-sales over FY24-26E to INR250b.

-      Cash flow performance – Collections hit an all-time high of INR26b, up 80% YoY. However, OCF grew by 45% to INR11b due to higher construction spending. In 9MFY24, DLF collected INR66b and generated INR32b of OCF.

-      P&L performance – Revenue grew 2% YoY/13% QoQ to INR15b but was 23% below our estimate. EBITDA stood at INR5.1b, up 7% YoY/11% QoQ, leading to a margin of 34% (vs. 32% in 3QFY23). PAT was up 26% YoY at INR6.6b (23% below estimate), driven by higher other income and a 27% increase in JV profit contribution from DCCDL.

DCCDL: on track to exit FY25 at rental run rate of INR51-52b

-      Rental income in DCCDL’s commercial portfolio increased by 8% YoY to INR11b, driven by a 21% rise in retail income. Office rentals grew 6% YoY.

-      Occupancy increased by 200bp YoY to 92% but remained flat YoY. Non-SEZ vacancy was flat at 97%, while SEZ vacancy dropped 100bp to 84%. Post the recent amendment in SEZ Act, DLF has already applied for a floor-wise de-notification of 1.1msf of SEZ space (out of 2.4msf vacant), which will boost occupancy over the next 6-12 months.

-      Rentals at two towers (2.3msf) at Downtown Chennai will commence from 1QFY25 and pre-leased Standard Chartered tower (1msf) from 4QFY25. Tower 4 at Downtown Gurugram will contribute to rentals from 1QFY26. After these completions, the rental run rate will rise to INR51-52b.

Key takeaways from the management interaction

-      Launches: Key project launches for next year include a luxury project in DLF 5, a subsequent phase of Privana, a high-rise project in Chennai, and the first phase of the Mumbai project. Additionally, the company will launch small projects in Goa and Panchkula.

-      Land purchase: DLF has acquired 29 acres of land by taking over INR8.5b of debt from erstwhile lenders of IREO developers. The land parcel is located on the Golf Course extension road and has a development potential of 7.5msf. DLF expects to spend INR2500/sft to take the complete ownership of the land. It plans to launch the project in the next 12 months.

-      Guidance and margin: Launch of 2^nd phase of DLF Privana can happen in March. Once the timing is ascertained, company will accordingly provide guidance for FY25. But it will target certain growth over FY24 pre-sales. With higher realizations blended margins will increase to 45-50% versus 35% currently

 Valuation and view: Growth trajectory intact but priced in valuations

-      We raise our FY25E pre-sales by 46% to INR200b and expect FY26E pre-sales to be INR250b as we incorporate the upcoming launch pipeline. However, we reduce our FY24E/FY25E PAT by 29%/25% to account for lower recognition.

-      Its vast land reserves continue to provide growth visibility. However, our assumption of 12-13 years of monetization timeline for its balance 160msf of land bank (including TOD potential) sufficiently incorporates this growth.

-      We estimate a 8-10% CAGR in prices across its key markets of Gurugram, New Gurugram, Delhi, and Chandigarh. Based on above assumptions we value the land at INR790b. The current valuation already implies INR 835b of value for its land indicating limited upside potential.

-      We incorporate higher realization for its New Gurugram land and tweak our monetization assumption to incorporate its aggressive launch pipeline as indicated by the company. We revise our TP to INR740, indicating 2% downside potential. Reiterate our Neutral rating.

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