DLF's growth potential anchors market confidence, brick by brick

Constructing value: With fortified finances, real estate major builds on sector consolidation

The pre-sales or booking momentum of DLF, the country’s largest listed real estate company by market capitalisation, remained strong in the April-June quarter (Q1) of 2024-25 (FY25). At Rs 6,404 crore, the bookings were four times (318 per cent) higher on a sequential basis and three times (214 per cent) more than the year-ago quarter.

Sales were led by a strong response to the luxury project Privana West in Gurugram (second phase), which accounted for Rs 5,600 crore of the overall bookings in the quarter. This, coupled with sales of Rs 251 crore in The Camellias (Gurugram), boosted sales in the quarter.

Given the sales momentum, cash collections have also doubled over the year-ago quarter, while they are up over a third on a sequential basis. Collections stood at Rs 2,968 crore. As a result, operating cash flows also jumped 152 per cent year-on-year (Y-o-Y), while the gains quarter-on-quarter were over two-thirds at Rs 1,849 crore.

DLF expects quarterly collections of about Rs 3,000 crore and construction spending of Rs 800 crore per quarter from the third quarter of FY25. DLF plans to use half of the surplus cash flows for land acquisition and the balance to pay dividends.

While the company had guided bookings of Rs 13,000 crore in 2023-24 (FY24), it exceeded this with bookings of Rs 14,800 crore. It has guided bookings of Rs 17,000 crore to Rs 18,000 crore in FY25, which is 15–21 per cent higher than its FY24 performance.

The company has increased its launch pipeline for FY25 with the gross development value now at Rs 42,000 crore. Over the medium term, the company seeks to launch projects with an area of 24 million square feet (msf) and a sales potential of Rs 62,500 crore.

Its overall development potential is pegged at 192 msf, with two-thirds of this accounted for by the Delhi and Gurugram markets. It has diversified its presence in Chennai, Hyderabad, Chandigarh, Kolkata, Mumbai, Pune, and Nagpur, among other cities. So far, it has focused on 31 per cent of this land bank (60 msf) through launches (ongoing/planning stage) in the medium term.

Analysts Pritesh Sheth and Sourabh Gilda of Motilal Oswal Research believe that the prospects for further development are factored into the prices and thus have a ‘neutral’ rating on the stock.

“DLF continued to enhance its growth visibility as it replenished its launches with its existing vast land reserves. However, our assumption of a 12-13-year monetisation timeline for its remaining 160 msf of land bank adequately incorporates this growth,” they point out.

In the commercial segment, the overall occupancy for its office portfolio in Q1FY25 was flat on a sequential basis, with 97 per cent occupancy for non-special economic zone (SEZ) assets and 86 per cent for lease areas within SEZ. The rental income (including other income) increased by 10 per cent Y-o-Y to Rs 1,238 crore. The overall operational portfolio is 42 msf with an occupancy rate of 93 per cent.

Management expects vacancy to decline to 6-7 per cent by the end of this financial year from 8 per cent currently, and rentals at the end of 2025-26 are expected to be Rs 5,800–6,000 crore. It has denotified 1.6 msf of SEZ assets, most of which have been leased. With office demand improving, the performance of the rental portfolio is expected to strengthen going forward, says Nuvama Research.

The consolidated net debt for commercial operations is Rs 17,583 crore, while the net debt to operating profit is 3.7 times. This metric has been coming down over the past four years due to portfolio growth and the use of internal accruals to fund capital expenditure.

Nuvama Research has a ‘buy’ rating on the stock and believes that the launch trajectory is key. Given the revamped balance sheet, which is likely to generate better cash flows, the company is expected to emerge as a key beneficiary of the ongoing sector consolidation. It also boasts an attractive rental portfolio that has grown steadily despite the pandemic, say analysts Parvez Qazi and Vasudev Ganatra of the brokerage.

While the stock had dipped after the Budget on account of the withdrawal of indexation benefits, it has regained the ground it lost over the past few trading sessions. Investors can consider the stock, which has gained over 60 per cent over the past year, on dips.