Analyst Corner — DLF: Maintain ‘hold’, increase TP to Rs 280

With new launches deliberate once more, we might want to monitor optimistic money movement technology. Nonetheless, the elevation of the Group CFO to the CEO position provides us extra confidence on the money movement focus.

Residential gross sales momentum has returned and firm is extra optimistic on future: DLF has achieved Rs 10billion of quarterly gross sales momentum for 2 consecutive quarters, which places it firmly on monitor to realize its goal of Rs 40billion for FY22. The corporate even indicated that it has now began taking worth will increase for its merchandise. With Rs 80 billion of stock to be launched and one other Rs 60billion already launched however but to be bought, Rs 40billion isn’t an formidable goal. With new launches deliberate once more, we might want to monitor optimistic money movement technology. Nonetheless, the elevation of the Group CFO to the CEO position provides us extra confidence on the money movement focus.

Business continues to be weak however we anticipate restoration in FY23: Like different industrial workplace areas, DLF’s industrial workplace entity DCCDL has additionally been shedding some occupancy and it’s now (as of This fall FY21) all the way down to beneath 87% ranges vs 90% in Q3. DLF has c4msf of workplace space underneath building (over its base of 30.3msf) which can be prepared over the subsequent 18 months. We anticipate this to be a medium-term drag on the inventory as new internet leasing will probably be gradual within the medium time period.
Funding view: We imagine DLF will proceed to dominate the NCR residential market given its model, availability of land financial institution and robust stability sheet. Nonetheless, momentum in gross sales must be pushed by new launches, which frequently drive up debt as nicely. We imagine the final two quarters have revived some small- to mid-sized builders and they’re now seeking to launch new initiatives. This will doubtlessly decelerate market share good points for the massive branded builders. Nonetheless, valuations are pricing in a speedy enhance in market share and sometimes share worth efficiency of the inventory is pushed by the motion of debt. Therefore, we preserve our ‘maintain’ score.

Preserve ‘maintain’ however enhance goal worth to Rs 280: We tweak our earnings estimates by 0.3%-3% for FY22/23e to account for adjustments in launches. We introduce our FY24 estimates. We worth the corporate on a DCF mannequin of venture money flows. We assume a WACC of 12%, primarily based on a risk-free price of 5%, together with nation inflation premium of two.5%, fairness threat premium of 5.5%, in keeping with our world technique workforce’s forecast; and a beta of 1.6 (all unchanged). We calculate our Mar’22 honest worth by making use of a reduction of 11% (unchanged) at 1 customary deviation above imply (unchanged) low cost to our NAV estimate of Rs 347 (earlier Rs 335). We low cost it again by 9 months (earlier one 12 months) to reach at our present honest worth goal worth of Rs 280 (earlier Rs 270). Our TP implies 9.7% draw back.