DLF stock sees muted reaction from analysts post in-line Q1 results

Analysts have 'neutral' to 'buy' ratings with target price between Rs 385 and Rs 450 as they believe results and guidance already priced-in

Real estate major DLF’s results could be considered a bellwether for the sector in the key national capital region (NCR). While DLF declared results which were in line with analysts’ expectations, the stock saw a marginal correction with a consensus that valuations had already priced in the results and the guidance. It closed at Rs 384.15 on the BSE on Monday, down just about half-a-per cent.

The revenue was Rs 1,440 crore, up 26.5 per cent year-on-year (YoY) but down 6.8 per cent quarter-on-quarter (QoQ). The Ebitda stood at Rs 410 crore (up 4.6 per cent YoY, and 12.5 per cent QoQ). The Ebitda margin was at 28.7 per cent (down 6 per cent YoY and up 4.9 per cent QoQ). The share of profits of associates and joint ventures was at Rs 210 crore (up 57 per cent YoY and 16 per cent QoQ). The adjusted PAT was at Rs 470 crore (up 39 per cent YoY and 15.7 per cent QoQ). DLF’s rental arm, DCCDL, declared revenues of Rs 1,260 crore (up 21 per cent YoY and 5.8 per cent QoQ) with Ebitda of Rs 900 crore (up 18 per cent YoY and 6.7 per cent QoQ) and PAT of Rs 290 crore (up 60 per cent YoY and 11.4 per cent QoQ).

Presales for quarter one for the 2022-23 financial year (Q1FY23), were at Rs 2,040 crore (up 101 per cent YoY but down 25 per cent QoQ), were robust. The presales guidance was assessed at Rs 8,000 crore for FY 23. The DCCDL office portfolio collection was at 100 per cent, but occupancy stayed flat at 88 per cent. Management expects occupancy to improve with a policy push if the special economic zone (SEZ) Bill clears Parliament. The residential segment Ebitda margin is targeted at 35 per cent or better. New projects to be launched in the second half could have Ebitda margins of over 60 per cent according to management guidance.

Deleveraging continued with free cash flow of Rs 420 crore, to reduce net debt to Rs 2,260 crore, down from Rs 2,680 crore, QoQ. The net debt-equity ratio is now at 0.06x. The net debt in DCCDL was down to Rs 1,880 crore, from Rs 1,900 crore QoQ. Capex in DCCDL is expected to be around Rs 1,200-1,500 crore in the next three to five years.

The NCR, therefore, seems to be rebounding and DLF’s combination of steady cash flows and land banks looks well-placed to exploit the sentiment. Cost hikes are still being passed on to the customers and DLF looks to launch Rs 2,000-Rs 2,500 crore of inventory every quarter in this fiscal with launches of 6.6 million square feet worth of projects, equally spread across the three remaining quarters.

The management indicated caution about rising interest rates with the chances that another 100-125 basis points of hikes could impact demand for the real estate sector, especially in retail housing. The company is almost ready to launch its real-estate investment trust (REIT) in the next six-to-eight months. At current valuations, the surplus land banks are valued at Rs 48,000 crore. assuming timelines of 10-20 years for development.

Valuation for real estate companies is always difficult since revenues can be lumpy, which makes revenue/income projections hard and land bank valuations can change considerably. Analysts’ valuations for DLF range between Rs 385 to Rs 450 and recommendations range from ‘neutral’ to ‘buy’.