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Strong operating performance; launch pipeline expands

Successful launch of Privana West drives strong sales

* DLF reported a more than three-fold jump in pre-sales as it clocked bookings of INR64b, largely driven by the successful launch of the second phase of Privana West, Gurugram. The company continues to sustain momentum at its ultra-luxury project, The Camellias, in DLF 5, with bookings of INR2.5b.

* With the balance inventory of INR30b, launches will thus be the key to driving its pre-sales growth. DLF aims to launch INR420b worth of projects across its core markets (up INR60b vs. 4QFY24), which will lead to 22% YoY pre-sales growth in FY25. Beyond FY25, the company has set a project pipeline worth INR625b to be launched over 2-3 years.

* Cash flow performance: Collections also spiked in 1QFY25 and almost doubled YoY to INR30b. As a result, OCF surged 130% YoY to INR18b, which led to a surplus of INR13b, post-INR4b of land payment. The balance sheet further strengthened as it ended with a net cash position of INR29b.

* P&L performance: Revenue came in a bit soft at INR13.6b, down 4% YoY. While gross margin remained steady YoY at 51%, EBITDA margin contracted 19pp due to 85% YoY jump in other expenses on account of the big launch. PAT, including INR3b of JV income, increased 23% YoY to INR6.4b.

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

* Rental income in DCCDL’s commercial portfolio increased 10% YoY to INR11.5b, led by the completion of the 1.3msf Downtown Chennai asset and 40bp rise in occupancy, which led to a 10% YoY increase in office rental income. The retail portfolio also continued its momentum and reported 12% growth in rental income. The total revenue stood at INR15b, flat QoQ.

* Occupancy across non-SEZ/SEZ portfolio remained flat QoQ at 97%/86%. The retail portfolio was almost fully leased with 99% occupancy.

* Further, 3.1msf is under construction across existing assets in Gurugram and Chennai and is 85% pre-leased including the hard option. Once delivered by 1HCY25, exit rentals are likely to rise to INR60b

Key takeaways from the management interaction

* Launches: DLF is targeting to launch INR420b worth of projects in FY25 across all segments. The luxury project in Goa will be launched in 2Q; Luxe 5 and the Mumbai project will be launched in 3Q, and the subsequent phases of Privana in 4QFY25.

* Guidance: Management maintained the earlier guidance of INR170-180b of bookings in FY25. However, it indicated that except for the ultra-luxury project in DLF 5, all the new projects are likely to follow the previous trend of monetizing significant (80-90%) inventory during launch.

* Cash flow: The current run-rate of collections is expected to sustain, but the construction outflow will rise. DLF has INR210b of pending receivables against which the construction cost is anticipated at INR100-110b.

* Annuity income: By the end of FY25, the annuity income is projected to scale up to INR50b and will further grow to INR58-60b in FY26, aided by the flow of rent from new assets at Gurugram and Chennai

Valuation and view: Growth trajectory intact but already priced in

* 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 estimate an 8-10% CAGR in prices across its key markets of Gurugram, New Gurugram, Delhi, and Chandigarh. Based on the above assumptions, we value the land at INR1,109b. The current valuation already implies INR1,060b of value for its land, indicating limited upside potential. Reiterate Neutral with a TP of INR850.

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