Street rejoices DLF's strong Q4 performance, guidance; stock surges 7.4%

Encouraging results for the fourth quarter of the 2022-23 financial year (Q4FY23) have led to a big surge in the share price of DLF. The realty major closed FY23 with Rs 15,000 crore (up 107 per cent year-on-year or YoY) of pre-sales, leading to cash generation of Rs 2,500 crore (up 14 per cent YoY) and reduced net debt by Rs 1,960 crore YoY. 

The launch of The Arbour project in Q4FY23 alone drove sales of Rs 8,000 crore in the quarter. The development pipeline has risen by Rs 20,600 crore to Rs 67,600 crore with the monetisation of additional 6 million square feet as well as higher unit pricing (Rs 16,419 per sq. ft, which is up 22 per cent) for previous proposed developments. 

The performance of DCCDL (DLF Cybercity Developers, the joint venture with government of Singapore where DLF holds 67 per cent stake), was also strong, with rentals growing 19 per cent YoY to Rs 4,000 crore. The FY24 launch guidance has been scaled up, although sales guidance remains conservative.

The fourth quarter saw collections of Rs 1,840 crore (up 50 per cent YoY and up 38 per cent QoQ) driven by about 10 per cent collections from The Arbour Project in Gurgaon and overall net debt reduction. The net debt is now Rs 720 crore. In the DCCDL Rental JV, the blended occupancy is at 90 per cent. 

For the builder, Q4FY23 reported revenues were Rs 1,456 crore (down 6 per cent YoY) with earnings before interest, tax, depreciation and amortisation (Ebitda) at Rs 398 crore (up 8.4 per cent) and adjusted profit after tax (PAT) of Rs 570 crore (after Rs 284 crore from minority interest). The reported profitability improved 40 per cent due to lower interest expenses (down 34 per cent YoY) and the dividend income from DCCDL in Q4. Free Cash Flow generation of Rs 960 crore was a record.

The guidance is for Rs 11,000 - Rs 12,000 crore of pre-sales for FY24 against new launches of Rs 19,700 crore (11 million sq. feet worth of projects) and Rs 7,390 crore of launched but unsold inventory, of which 42 per cent is completed. The launches are mostly focused on the National Capital Region. Cash flows are expected to be healthy but higher rental collections (about 20-25 per cent higher in FY24) will be offset by construction outflows increasing 50 per cent keeping, cash flow flat YoY. 

In the rental JV DCCDL, demand for the special economic zone segment remains soft. But malls reopening led to a contribution of Rs 740 crore of rentals (up 65 per cent YoY) with occupancy at 98 per cent. DLF is planning to double its mall portfolio to about 9 million sq. feet over the next 5 years. Further, DCCDL also continues to invest for office and retail expansion. 

Over the last 2-3 years, DLF has launched 18 million sq. feet of projects with an estimated sale potential of Rs 24,000 crore, of which 80 per cent has been sold. During the same period, it has deleveraged net debt by Rs 4,500 crore through operating cash flows. The profitability is expected to rise as higher-margin projects achieve revenue recognition. 

Real estate developers tend to have lumpy incomes and outflows, which makes profit and loss ratios less meaningful. Most analysts do valuations on the basis of net asset value (NAV), taking values of land holdings and unsold inventory.

For DLF, these valuations range between Rs 440 and Rs 550, with some analysts assigning a small premium to price targets over NAV estimates. There are many ‘buy’ recommendations and the Street is obviously happy. The current price is Rs 468.