Maintain ‘add’ on DLF with revised TP of ₹434

Valuations: We maintain our ADD rating on DLF with a revised FY22 SoTP based target price of ₹434/s.

DLF’s Q2FY22 net residential sales bookings of ₹15.1bn were up 49% QoQ and surprised positively (Isec estimate of ₹9.8bn) driven by record sales in the Camellias super-luxury project of ₹10.4bn. With 7.7msf of residential launches lined up in H2FY22E, we expect DLF to clock over ₹50bn of annual sales bookings in FY22E and beyond. We expect DCCDL to clock rental EBITDA of ₹34.0bn in FY22E and ₹40.5bn in FY23E. We maintain our ADD rating on DLF with a revised FY22 SoTP-based target price of ₹434/share (₹355 earlier) as we assume higher residential sales bookings over FY22-24E and incorporate land bank valuation adjustments. Key risks to our rating are continued weakness in office leasing and slowdown in residential demand.

Residential sales deliver significant performance beat: The company clocked net residential sales bookings of ₹15.1bn in Q2FY22 (Isec estimate of ₹9.8bn) vs. ₹10.1bn in Q1FY22 as the Camellias super-luxury project in Gurugram achieved ₹10.4bn of sales bookings across 34 units (the project had achieved ₹3.3bn of sales in Q1FY22 and ₹3.2bn of sales in Q4FY21). The company attributes this to the earlier pipeline of enquiries converting into actual sales and recent price hike of ₹5,000/psf in the project. With the company intending to launch new projects of 7.7.msf in H2FY22E and continued traction in Camellias sales (expect quarterly run-rate of at least ₹5bn), we expect DLF to now maintain an annual sales booking run-rate of over ₹50bn annually from FY22E onwards vs. historical levels of ₹20-25bn.

DLF’s net debt declines QoQ, liquidity position comfortable: DLF’s net debt (ex-DCCDL) declined QoQ by ₹7.5bn to ₹39.9bn on the back of strong customer collections of ₹14.0bn for the quarter vs. usual run-rate of ₹6-8bn. The company is targeting further reduction in debt levels over H2FY22-23E on the back of improved operating surplus from devco business and a structural reduction in cash overheads (down 41% YoY in FY21) and lower interest costs.

Rental business delivers resilient performance: DCCDL delivered a resilient Q2FY22 performance with rental collections of 100% and rental EBITDA of ₹8.3bn (increase of 7% QoQ) on account of reduced mall rental waivers and office portfolio occupancy remaining flat QoQ at 86%. In Q2FY22, DLF achieved contractual rental escalations of 11% on 2msf of area and expects escalations of 14% on 4msf of area for the remainder of FY22. The company remains confident of a strong leasing pickup from FY23E and we model for DCCDL rental EBITDA of ₹34.0bn in FY22E and ₹40.5bn in FY23E.

Valuations: We maintain our ADD rating on DLF with a revised FY22 SoTP based target price of ₹434/s.