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Real estate developer DLF Ltd expects its residential sales to see double-digit growth in FY23. This was one of the key takeaways from its analyst meet held on 27 May. New launches of 7.6 million sq. ft (msf) slated in the current fiscal year would drive sales bookings. In FY22, DLF’s pre-sales at 7,273 crore more than doubled on a year-on-year (y-o-y) basis, reaching a multi-year high. With that, the company surpassed its sales guidance of 6,000-6,500 crore.

Analysts say that while DLF has not shared a concrete pre-sales guidance for FY23, double-digit growth of more than 10% on the base of FY22 is directionally positive. In reaction to the management’s commentary, the DLF stock ended Monday’s trading session up 7% on the NSE.

 Bumper sales
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 Bumper sales

Even so, the stock is 23% away from its 52-week high of 449.70 seen in October 2021. DLF’s sales outlook is robust, but there are risks from rising home loan interest rates and inflation-led price hikes. So, a significant upside in the stock would happen gradually, said analysts.

The DLF management foresees a material impact on sales if interest rates on home loans were to rise beyond 8%. In the case of real estate developers, a borrowing rate above 10% will have a material impact on the return profile, the management said. Construction cost had risen by 10-15% y-o-y, but since DLF’s product mix is high-margin, a 5% portfolio price increase should be enough to offset the impact, the management said. The DLF management has said would continue to focus on the luxury and mid-income segment, which enjoy higher margins than the affordable housing sector.

“These risks are not particularly for DLF only, but the stock’s re-rating to a large extent depends on land bank developments. DLF enjoys the advantage of having a large chunk of land bank in the key National Capital Region. However, if these risks play out, they may impact the anticipated sales trajectory, which is a dampener for the stock," said an analyst with a domestic brokerage house requesting anonymity.

Taking into account DLF’s ability to hike prices in the ONE Midtown, Delhi project, analysts at Motilal Oswal Financial Services have upped their FY23/24 pre-sales estimates by 6-9%. “While near-term growth outlook across the segments remains intact, the uncertainty around rising the interest rate cycle will lead to limited land re-rating," the domestic brokerage house said in a report on 29 May.

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