EUR 120.00 For Business Accounts Only

MOSL: DLF: Strong pipeline for FY23; growth largely priced-in

• DLFU reported new sales bookings of INR20b, which, although down 25% QoQ (doubled YoY), was in line with the quarterly run-rate indicated by management and marginally higher than our estimate of INR18b.
• New products saw sustained strong demand, with sales of INR9.5b in 1QFY23, while there was an expected drop in sales from its Ultra-Luxury Camellias project to INR3.5b v/s INR6b in the preceding two quarters.
• The company remains on track to launch 6.6msf of projects, with a GDV of INR65b in the remainder of FY23, equally spread across the three quarters. The management reiterated its new sales guidance of INR80b for FY23 due to the uncertainty posed by rising interest rates. We expect the company to clock pre-sales of INR86b in FY23.
• Collections fell 17% QoQ to INR11b, which led to a decline in surplus cash flows to INR4.2b v/s INR5.4b in 4QFY22. Debt in DLFU’s Residential segment declined further to INR22.6b.

Retail rentals back to pre-COVID levels; expect Commercial portfolio to register 18% CAGR over FY22-24

• Portfolio occupancy for DCCDL remained stable at 89% in 1QFY23. Rental income grew 20% YoY and 7% QoQ, led by a recovery in Retail rentals to INR1.7b, while Office rentals increased by 4% YoY and 2% QoQ to INR7.6b.
• The company received an OC for the fully leased out 1.7msf block in Downtown Gurugram, with rents expected to commence from Oct’22. Downtown Chennai will be completed in mid-FY24, with rents expected to commence from 3QFY24.
• We expect DCCDL’s portfolio to register 18% rental CAGR to INR47b over FY22-24. DLFU is planning to scale-up its Retail portfolio by 5msf in both DCCDL and the DevCo entity, with rents commencing from FY25.

Key highlights from the management commentary

• Housing demand: While on-ground demand remains strong, as reflected by the strong traction across projects, the management feels that the impact of the recent hike in mortgage rates may be transitory. However, it added that another 100-125bps hike can have an impact on demand.
• Retail expansion: On the DCCDL platform, DLFU is in discussion with architects, and plans for Mall of India will be frozen in a quarter or so. The design for the Vasant Kunj Mall is on track, and construction will commence over the next two quarters.
• DLFU platform: High Street Retail in Midtown will commence in two-to-three months, while DLF Avenue in Goa will be launched in 2HCY24.
• REIT update: From a launch perspective, DLFU is almost ready as the structuring is almost done. The REIT can be launched in the next six-to-eight months, depending on the macroeconomic situation. From a strategy standpoint, there are certain areas like debt funded capex, share of ready and under-construction properties, etc. where the pros and cons are being considered by both shareholders (DLFU and GIC). So firming up decision on REIT is more about timing rather than intent

Land re-rating largely behind it; reiterate Neutral

• We reduce our FY23/FY24 PAT estimate by 19%/5% to incorporate higher overheads and a near-term lag in cost and revenue recognition. We maintain our pre-sales and cash flow estimates.
• While we remain confident about the growth trajectory in both its Residential as well as Commercial business, a large part of it already seems priced into valuation. Thus, the implied value of land remains the only key metric for a further upside in the stock.
• At current valuations, the surplus land in DLFU and DCCDL is valued at INR480b, which is in line with our estimated value, assuming a development timeline of 20 years for DLFU’s 151msf and 11 years for DCCDL’s 25msf, which is fair in our view.
• We incorporate a lower debt in DCCDL’s portfolio and revise our TP to INR385, implying limited upside from its CMP. We reiterate our Neutral rating.