Strong bookings and new launches to keep DLF on higher growth trajectory

REIT listing and valuations are triggers, but rising interest rates is a concern: Analysts.

With a rise in bookings, DLF ended the March quarter (Q4) as well as financial year 2021-22 (FY22) on a high. Bookings in Q4 jumped 158 per cent or nearly 2.6 times over the year-ago period to Rs 2,700 crore, beating the company’s guidance of Rs 2,000 crore.

Sales rose in Q4 thanks to the launch of the One Midtown project in Delhi, traction in the super luxury Camellias project (Gurugram), and plotted development/independent floor sales at various locations.

Further, the country’s largest listed real estate company saw all-time high total bookings of Rs 7,273 crore in FY22, a 136 per cent year-on-year (YoY) rise, and comfortably beat its guidance of Rs 6,000-6,500 crore. At 6 million square feet, new launches accounted for about two-thirds of sales in FY22, with the Camellias project accounting for a third.

Commenting on this, Manish Agrawal of JM Financial said DLF is witnessing sustained demand momentum and absorption is outpacing supply, leading to buoyancy in residential sales. DLF has also been able to hike prices (significantly higher than the industry average) across regions and ticket sizes because of its market leadership, he added.

The growth momentum is expected to sustain, thanks to the strong launch pipeline for the next couple of years. DLF plans to launch projects with a combined area of 7.6 million square feet in FY23 and 9.2 million square feet in FY24, respectively.

The traction in residential sales and rising collections (Rs 1,290 crore in Q4) led to strong growth in cash flows, which rose 85 per cent YoY to Rs 4,650 crore in FY22, largely because of the residential segment. Taking into account the construction costs and other overheads, net cash flows came in at Rs 540 crore. This helped the company reduce its net debt from Rs 4,900 crore last year to Rs 2,680 crore at the end of FY22.

While the residential segment has been the company’s mainstay over the past couple of years, the rental business is witnessing a gradual recovery. The leasing segment’s Q4 performance was steady with occupancies increasing by 200 basis points (bps) sequentially to 88 per cent and mall footfalls/consumption witnessing an improvement.

The company expects leasing to pick up in the current financial year with occupancy levels expected to cross 90 per cent in the first half of FY23. While the leasing arm achieved an operating profit of Rs 3,330 crore in FY22, Adhidev Chattopadhyay of ICICI Securities expects rental operating profit of Rs 4,130 crore in FY23 and Rs 4,420 crore in FY24. An incremental trigger could be the possible listing of the real estate investment trust (REIT) for rental assets in the current year.

The correction in the stock price has made valuation reasonable, but rising interest rates could be a headwind. Say analysts at Motilal Oswal Research, “The recent 20 per cent dip in the stock price has corrected its implied valuation. The stock is currently trading at a comfortable 2.3 times its price-to-book value. However, with rising interest rates, uncertainty over the industry growth outlook will remain.” Any further correction in the stock could be an opportunity for investors.