Buy DLF; target of Rs 581: YES Securities

YES Securities' research report on DLF

DLF achieved strong presales of Rs20.4bn in Q1FY23, traditionally weak quarter and has launch pipeline of ~7.6-7.8msf for reminder part of year, hence confident to achieve Rs80bn guidance for FY23 (valued cumulative FY23 launches at Rs80-85bn). With minimal inventory in Camellias, DLF plans to launch another premium project in DLF5 (plotted development) with saleable potential of Rs17-20bn in H2FY23. Annuity is on recovery path as physical occupancies are showing encouraging trend MoM and all the capex projects are on track. For DCCDL, management guided for exit rentals of Rs44bn for FY23E and Rs48-50bn for FY24E. Operating margins contracted as DLF is investing in organization and growth but should trend above 35% in coming years as projects added are margin accretive with gross margins +55%. 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. Additionally, being cognizant of interest reversal we increased WACC from 10% to 11.5% while kept cap rate unchanged. We valued residential business at Rs.152.6bn and believe DCCDL, with its 37.9msf operational portfolio and 7msf under-construction projects, is on track to achieve Rs55bn NOI by FY25 hence valued DCCDL at Rs319.9bn (DLF’s share & net of debt). DLF has shown capability of monetizing its land bank efficiently thereby we expect DLF to monetize 152msf with good pace too, hence valued at Rs383/share. DLF continuously maintaining its D/E below 0.2x since FY20 and is expected to remain low. Robust demand in residential and pick up in the leasing, deleveraged B/S along with DLF’s long standing track record gives us confidence.

Outlook

Hence maintain BUY rating with revised TP of Rs581/share (WACC 11.5%, Office Cap Rate 7.5%, Retail Cap rate 6.25%).

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