For DLF stock, positives are largely priced-in
- DLF said on-ground housing demand remains strong and the impact of rising home loan rates will be transitory. However, another 100-125 basis points (bps) can hamper demand for residential projects
Real estate developer DLF Ltd saw sales bookings of ₹2,040 crore in Q1FY23, down 25% sequentially. The June quarter is seasonally weak for the company, even so, pre-sales during the quarter were in-line with the quarterly run-rate indicated by the management, said analysts.
In a post-earnings conference call, the DLF management said that it remains on track to launch 7 million square feet (msf) of projects in FY23. Further, the management retained its pre-sales guidance of Rs8,000 crore for FY23. According to the management, on-ground housing demand remains strong and the impact of rising home loan rates will be transitory. However, another 100-125 basis points (bps) can hamper demand for residential projects, it added. One basis point is 0.01%.
Analysts note that while the company is expected to achieve its FY23 pre-sales target, execution of new product launches is crucial given that inventory in its ready projects is declining.
Reacting to the earnings, the DLF stock fell 1.5% on the NSE in Monday's opening trade. DLF announced its June quarter earnings on Friday, post market hours.
Investors were also disappointed with its operating performance. The management said that the drop in Ebitda margin was due to rise in other expenses. Ebitda is short for earnings before interest tax depreciation and amortization.
Remember that DLF had guided for Rs500-550 crore overheads last year, but given the increase in scale of operations, overheads can now reach Rs650-675 crore. That said, the management is hopeful of margins recovering to around 35% going ahead.
"We have kept topline unchanged but has calibrated estimates for higher expenses thereby trimmed our EBITDA by 13%/9% for FY23/24E, resulting in margin contraction by 429bps/306bps respectively," said analysts at Yes Securities Ltd.
Similarly, analysts at Motilal Oswal Financial Services have reduced their FY23/FY24 profit after tax estimate by 19%/5% to incorporate higher overheads and a near-term lag in cost and revenue recognition.
"While we remain confident about the growth trajectory in both its residential and 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," said the domestic brokerage house in a report.
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