Q4FY23 Review: DLF: Scaling up steadily

15 May 2023 , 01:24 PM

DLF reported its best-ever residential performance, driven by the success of its launch ‘Arbour’ in Gurgaon. FY24 launch guidance has been scaled up, although sales guidance has been kept modest just like in FY23. Sharp reduction in net debt in Q4 was the highlight, making DLF development business nearly net debt free. DCCDL JV performance was stable, leasing demand is expected to remain soft for next few quarters. Demand for luxury products, especially in NCR market, remains robust and critical for the success of DLF’s planned launches.

Best-ever Residential performance; Rental biz stable: 

Pre-sales of Rs84.6bn (of which Rs80bn came from ‘Arbour’ launch) drove FY23 presales to be the highest among all listed players at Rs151bn. Collections of Rs18.4bn (up 50% YoY/38% QoQ) were driven by ~10% collections from Arbour sales and led to net debt reduction of Rs13.7bn. Net debt now stands at Rs7.2bn, down Rs19.6bn YoY. In DCCDL Rental JV, blended occupancy (at ~90%), and rental income were flat QoQ. DLF’s reported profitability improved (PAT higher YoY/QoQ) due to lower interest expense and dividend income from DCCDL in Q4.

Strong launch pipeline for FY24: 

DLF has guided to a modest Rs110- 120bn target pre-sales for FY24 against new launches of Rs197bn and Rs73.9bn of launched unsold inventory — of which 42% is completed. The launches are focused on NCR market in Premium and Luxury segments. Cashflows are also expected to be healthy; higher collections will be offset by construction outflows keeping OCF flat YoY. In the rental JV DCCDL, demand for SEZ remains soft. However, DCCDL continues to invest meaningfully across office and retail expansion. Exit rentals are likely to go up from Rs42-44bn in FY23 to Rs48-49bn in FY24.

Play on strong NCR market; retain BUY: 

Over the last 2.5 years, DLF has launched 18msf with projects with a sale potential of Rs240bn; of which 80% has been sold. During the same period, it reduced its net debt by Rs45bn through operating cashflows. P&L performance is expected to steadily improve hereon as higher margin projects (DLF City and Phase V floors) come into revenue recognition. Sustained launch performance in FY24/25 and pick up in scale are key to stock performance in analysts of IIFL Capital Services view.