Real estate major DLF share price climbed nearly 10 percent intraday on February 25 after global brokerage house CLSA upgraded the stock to 'buy' with operations at a decade-best with strong presales data. The research firm had an 'outperform' rating on the stock earlier.
CLSA, however, cut the price target to Rs 423, from Rs 470 per share earlier, implying a potential 32 percent upside, in base case, from the previous day's closing levels. "The stress case valuation implies a downside cap of 11 percent," it said.
The brokerage has lowered its FY23 and FY24 revenue estimates by 2 percent and 5 percent, and profit estimate by 1 percent and 3 percent.
The stock corrected 29 percent in more than four months from its 52-week high in October 2021.
"The real estate operations are at a decade best. Its presales are at a 10-year high with strong free cash flow generation and no leverage concern," it said.
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DLF reported strong performance in its residential business as new sales value at Rs 2,018 crore nearly doubled on-year in the quarter ended December 2021, driven by new products and robust cash flow generation. Cumulative sales bookings for nine-month period in FY22 stood at Rs 4,544 crore.
The surplus cash generation of Rs 764 crore during the quarter resulted in a marked reduction in its net debt that stood at Rs 3,220 crore at the end of the quarter.
"Sustained collections, along with prudent capital allocation, continues to consistently generate significant cash surplus from our core operations," DLF had said in its BSE filing on January 31, adding the strong housing demand and a gradual recovery across the rental business will drive growth.
The real estate firm launched ONE Midtown, a luxury group housing project in the heart of the capital, during the quarter, which received overwhelming response and phase-I of the inventory was completely absorbed.
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Even its super luxury segment - The Camellias - continued to attract robust demand despite the price hike, where it recorded new sales of Rs 580 crore during the quarter, indicating a strong demand for high quality products at established locations.
"We continue to witness sustained demand traction for the Independent Floors across the Gurugram market and continue to bring new launches in this segment," DLF said.
The company plans to launch 3.5 million square feet of projects in the fourth quarter of FY22 across premium and mid-income independent floors and has further outlined 15 million square feet of projects to be launched in FY23-24.
"Sales traction remained intact despite 12 percent price hike taken at the portfolio level since beginning of the year and DLF further plans to take 10-12 percent price hike in its key projects (Camellias and the recently launched ONE-Midtown)," Motilal Oswal said.
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DLF's commercial portfolio (DCCDL) performance remained stable with marginal increase in occupancy to 88 percent in Q3FY22 as against 87 percent in Q2FY22. Rental revenue and EBITDA increased 7 percent and 5 percent on-year in Q3FY22.
Motilal Oswal has retained its pre-sales estimates for FY22-24 at Rs 7,000-8,500 crore as the estimates match its revised quarterly run-rate guidance of Rs 2,018 crore. "We have increased FY22/23 collections estimates by 7-9 percent on better-than-expected runrate."
While the brokerage remains constructive on DLF's pre-sales and rental growth, current valuation implies that large part of land re-rating is behind. Hence it maintained neutral rating on the stock with an unchanged SOTP-based target price of Rs 450.
The stock was trading at Rs 350.60, up 9.32 percent with volume of 5.77 lakh equity shares on the BSE, at 1:04pm.
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