DLF’s performance and growth expected to be highest in Q4

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Real estate major DLF Ltd ended fiscal 2021 well, with impressive March quarter results. Its Q4FY21 pre-sales of 1,060 crore was an improvement of more than 200% from the corresponding quarter last year. This sharp improvement was aided by new launches and a favorable base. Consequently, annual booking for its residential segment in FY21 hit a multi-year high of 3,100 crore.

In a post-earnings conference call, its management said sales in Q1FY22 were impacted by the second wave of covid-19. However, it expects to maintain a sales trajectory upwards of 1,000 crore per quarter in the remainder of FY22 and in FY23. DLF eyes annual bookings of 4,000 crore in FY22 on the back of its strong launch pipeline.

DLF launched projects aggregating 1.5 million square feet (msf) in FY21. It plans to launch around 35msf more of projects, 8.3msf in FY22, 6.4msf in FY23, 7.2msf in FY24, and the rest beyond FY24, the management said. The launches will be spread across segments such as luxury, mid-income, and commercial, across Delhi, Noida, Chennai, and Chandigarh. Despite the stellar sales performance, the stock ended Monday’s session down 3.5% at 299 on the National Stock Exchange.

“Though DLF has an aggressive launch pipeline, declining occupancies in its commercial portfolio is a cause for concern. Retail rentals were also weak in FY21 and while the management is optimistic of a pick-up, it remains to be seen how that part pans out. Also, its net debt level is likely to remain at an elevated level given the kind of launches it has planned. The outlook for the sector is bleak for now, so bumper sales in immediate quarters is unlikely,” said an analyst with a domestic brokerage house, requesting anonymity. DLF’s net debt was 4,900 crore, at the end of the March quarter.

The leasing momentum in the commercial segment, which had begun to pick up in February-March, has again dampened because of the second wave of the covid-19 pandemic, the management said. For its office portfolio, occupancy was down to 89% in Q4FY21 from 91% in Q3FY21, as occupiers deferred leasing decisions, following the sudden spike in coronavirus cases. From the 1.6msf space that is likely to come up for re-leasing in FY22, renewals are expected to be 75–85%, the management said.

In the retail segment, lockdown and rental waivers led to rentals falling 46% year-on-year (y-o-y) to 280 crore in FY21. The DLF management expects rentals to hit 380-700 crore in FY22. In its luxury project, Camellias, out of a total 3.6msf area, around 1.3msf space is still to be sold, the management said. This project accounts for the bulk of its unsold inventory.

“Investors were primarily concerned about the company’s significant exposure to the luxury residential segment, which forms the bulk of its unsold inventory, wherein sales were tepid. We believe the rate of liquidation of inventory worth 6,000 crore will be a key trigger for the stock,” analysts at Edelweiss Securities Ltd said in a note.

In the last one year, the DLF stock has rallied 105%, outperforming the BSE Realty index, which has posted 82% returns in the same period. The run-up in the stock captures the positives of an improvement in the sector’s residential cycle, according to analysts. From now on, timely execution of launches and recovery in the commercial portfolio will be key monitorables.