Cautious optimism: DLF's return to Mumbai real estate market

In the June quarter (Q1FY24) earnings call, the DLF management said it would make an equity investment of around ₹400 crore for a 51% stake in the project, spanning 3-3.5 million sq ft (msf) saleable area.

“Re-entry into the Mumbai market, which is a key region for real estate sales, is positive. Achieving incremental growth from a large base could have been difficult by focusing only on the National Capital Region (NCR)," Parikshit Kandpal, vice president, institutional research, HDFC Securities, said. So, the Mumbai market opens up new growth avenues for the company, he added.

The first phase of the project comprises a saleable area of 0.9 msf and is likely to be launched within 12 months, the DLF management said. The phase-wise launch will give DLF enough time to evaluate the dynamics of the Mumbai market in case it decides to be more aggressive.

Considering DLF’s past experience in Mumbai, this approach is understandable. In its earnings call, the DLF management explained that its slum rehabilitation project Tulsiwadi in Mumbai is still facing challenges.

So, this time around, it plans to expedite the launch of the first phase and start sales, instead of waiting for the entire project to be developed. This should aid cash flows.

This is DLF’s second foray in Mumbai after 2005, according to a report by Kotak Institutional Equities on 24 July. “DLF has fully capitalized on improving demand trends in Gurugram, offering a wide array of products at different price points and regular intervals. The re-entry in the Mumbai market, with a small partnership in the Western Suburbs, is interesting and marks a departure from the focus on the Gurugram market," the analysts said.

However, it is likely that investors are nervous due to the general scepticism around slum rehabilitation projects, which is reflected in the 4% dip in DLF’s share price in the past two days.

To be sure, the stock has seen a strong rally so far in 2023, rising 28%, and beating the Nifty Realty index. The stock hogged the limelight since the bumper pre-sales of ultra luxury project The Arbour, Gurugram, in Q4FY23.

Against that backdrop, Q1FY24 was soft with net sales (pre-sales or bookings) expectedly declining sharply on a sequential basis owing to a lack of new launches. Net sales at ₹2,040 crore in Q1 were flat year-on-year.

Going ahead, the firm has a robust launch pipeline of 11.2 msf with a gross development value of ₹19,700 crore.

No wonder then that the company has retained its ₹12,000–13,000 crore pre-sales guidance for FY24.

According to ICICI Securities, this guidance is contingent on the inventory released for sale in its planned 3.5 msf luxury launch in Phase V, Gurugram (Crest 2) which is estimated to have a sales value of ₹10,000 crore.

On the flipside, the performance of its commercial office segment was subdued with weak occupancies. The slowdown in the IT sector is a concern here. That said, the good part is that DLF’s net debt fell to ₹57 crore from ₹721 crore at the end of FY23. Also, if it succeeds in making inroads into the recently entered Mumbai market, its earnings outlook should get a fillip. “DLF enjoys an advantage of having land banks in NCR, also its balance sheet is healthy. We see scope for further re-rating, but that will happen gradually," added HDFC Securities’ Kandpal.