DLF: In a sweet spot

Recommendation: Buy

Target Price: Rs 450

DLF is likely to become the largest developer by pre-sales for FY23 after over a decade. Q4FY23 is likely to be the highest-ever for any listed developer. It will now have to accelerate its launch pipeline to sustain the momentum leading to monetization of its historical land bank, yielding high margins and cash flows. Analysts at IIFL Capital Services have raised their FY23-FY25 estimates across pre-sales and collections; while maintaining forecasts for the Annuity vertical. They have raised their target price to Rs 450.

New launch clocks in >Rs80 billion; management claims >95% are end-users

DLF announced that it has sold 1,137 flats at its new launch ‘The Arbour’ at Golf Course extension in Gurgaon. The sale of the entire set of flats within three days of launch led to clocking in Rs80 billion pre-sales. Further, 95% of the buyers were individuals who purchased for end use and have paid 10% minimum instead of the usual booking amount, which is much lower, the company shared. DLF has received a strong response from the NRIs. DLF had guided to launching 2msf in Q4, but eventually rolled out the entire 4msf, presumably looking at the strong response.

All eyes on FY24 launch pipeline

DLF had guided to >Rs80 billion presales for FY23; by 9MFY23 they had achieved Rs66 billion. For FY23, DLF should now report pre-sales of ~Rs150 billion for FY23, and also higher collections YoY, driving down the net debt. DLF is also expected to rework its launch pipeline for FY24 (considering ‘Arbour’ 2^nd phase has been front-ended) and is considering accelerating its launch pipeline in Gurgaon and other markets. P&L impact will come with a lag, for FY23 will be muted; recognition of new launches will start in FY24.

Annuity business steady

DLF’s Rental business (DCCDL) is generating exit rentals of >Rs42 billion and expected to be Rs47-48 billion by end FY24. Further, DLF has a land bank of ~150msf, and >15msf in DCCDL; analysts at IIFL Capital Services expect DLF to accelerate launches from their existing land bank, and expand into new cities like Mumbai and Goa. Given the recent strong performance and outlook, they have raised their FY23-FY25 estimates across pre-sales and collection. DLF is their top pick in the real estate sector.