DLF rating – Buy: Resilient show by company in face of odds

DLF’s new sales came in at Rs 10.1 bn in Q1FY22 (up 567% YoY, down 4% QoQ) despite the second wave; this was driven by healthy demand for independent floors. Rentals (DLF + DCCDL), however, slid to ~Rs 7.8 bn (~Rs 9.0 bn in Q4FY21). Cash flow remained healthy, leading to debt reduction at Devco. The company is ramping up its launch pipeline (~8.3msf target launches in FY22) keeping in mind the strong housing demand.

Pre-sales trajectory will be a key stock catalyst, in our view. Improving sales momentum compels us to revise up our TP to Rs 403 (Rs 365 earlier). We maintain earnings estimates for the erstwhile merged entity and Buy on the stock.

Resilience in challenging times: Net sales were aided by: i) ~Rs 3.3 bn sales in Camellias (~Rs 3 bn in Q4FY21); ii) ~Rs 5.4 bn worth of new products (independent floors) sold (~Rs 4.6 bn in Q4FY21); and iii) ~Rs 1 bn in sales in National Devco. Mgmt indicated that demand remains healthy across price points/geographies. It has taken price hike upwards of 20% in certain projects. DCCDL’s rentals came in at Rs 7.7 bn (Rs 8.4 bn in Q4FY21). Enquiries are picking up and management expects leasing to improve in H2FY22. Cash flow improved at Devco; consequently, net debt declined by Rs 1.4 bn QoQ (net D/E at 0.13x).

Robust launch trajectory to spur sales: DLF is stepping up launches to benefit from the strong housing demand. It plans to launch ~35msf of projects–8.3msf in FY22, 6.4msf in FY23, 7.2msf in FY24 and balance beyond FY24. These launches will be spread across segments (luxury, mid-income, commercial) and geographies. We believe these launches will uplift the sales trajectory.

Outlook: Launches key– The uptick in pre-sales bodes well for DLF. We believe launches/sales trajectory going ahead will be key stock catalyst. We maintain ‘BUY/SN’.