Markets
DLF sees room for growth, but is it too early to be optimistic?
Summary
- For DLF, in the next couple of years, growth in pre-sales may not be as robust as earlier due to potential execution and cyclical demand challenges
DLF Ltd’s shares have dropped 18.5% in the past one year, massively underperforming the sectoral Nifty Realty index, which is flattish. Investors in the stock worry about a possible slowdown in the real estate market due to broader macro-economic pain and the resulting weakness in sales, especially given that the base is high now.
DLF has already surpassed its FY25 pre-sales or bookings of ₹17,000 crore after clocking pre-sales of ₹19,187 crore in the nine-month ended December (9MFY25).
The launch of the uber-luxury project ‘The Dahlias’ at Golf Course Road in Gurugram in Q3FY25 went a long way in boosting pre-sales for the year. Thus, all eyes are on precise guidance for FY26, which DLF is likely to share while announcing Q4FY25 results.
At its analysts' meeting on Friday, the company shared its business plans, although there are no big surprises from investors perspective. “Ongoing/planned project pipeline is worth ₹1.14 trillion, of which 35% is launched. Another about 15% (Rs17000+ crore) launches are planned in FY26," said a Jefferies India report dated 23 March.
DLF is targeting over 45% gross margin from the development business over the medium term. The company’s low-cost land bank coupled with luxury/super-luxury offerings should help it deliver consistent margin accretion.
Also Read: Dahlias project sets the stage for DLF’s rosy FY25 exit
Furthermore, DLF aspires to have a group net debt zero position by FY30 and also invest in significant growth capex. Group net debt as on December-end stood at ₹14,679 crore, down from ₹24,028 crore in FY21. Besides, DLF aims to move towards having a dividend payout ratio of about 50% of profit after tax (PAT) over time. This would imply that the dividend payout would potentially treble from here, according to Jefferies.
In its annuity business, DLF expects annual rentals to reach about ₹10,000 crore by FY30. It expects group PAT and cash flow to grow about 2x by FY30.
“The overall commentary was cautiously optimistic, with the management remaining wary of any aggressive foray/investments and aiming to conserve cash for a potential downcycle and making opportunistic bets, if required," said IIFL Securities.
To that extent, the underperformance of DLF’s shares gives some comfort on valuations. The company’s robust cash generation, reducing debt and strong annuity income profile are favourable factors. Still, in the next couple of years, growth in pre-sales may not be as robust as earlier due to potential execution and cyclical demand challenges. Mumbai project launch could provide a near-term trigger, reckons Jefferies.
Also Read: DLF’s second going: Can the real estate giant succeed beyond its comfort zone?
