Incorporated in 1963, DLF Limited (DLF) is one of India's leading real estate developers, with a track record spanning more than seven decades. Its primary businesses are residential property development and sale (Development Business) and commercial and retail property development and leasing (Annuity Business). It has developed 153 real estate projects covering a total area of 330 million square feet (msf). The group has an annuity portfolio of over ~35 msf. It is credited for the development of numerous well-known urban colonies in Delhi, including South Extension, Greater Kailash, Kailash Colony, and Hauz Khas, as well as DLF City, one of Asia's largest private townships in Gurgaon, Haryana.
|Particulars (Rs. in Crores)||Net Sales||EBITDA||EBITDAM||PAT||EPS||ROE||P/E||EV/EBITDA|
Established Market Position with Significant Land Bank
DLF has a well-established market position, owing to its proven track record of project completion and presence in all segments in multiple places around the country, allowing for broader buyer coverage. It has land bankin various regions across India with ~56% of land bank in Gurgaon (~13% in DLF 5/DLF City and ~43% in New Gurgaon), 9% in Chandigarh Tri-City Region, 9% in Maharashtra, 7% in Delhi, 6% in Chennai, 2% in Hyderabad and the balance in various other states. Out of the total ~187 msf of land parcel, DLF has planned new products launches of ~35 msf in medium term and if demand continues to be strong, the company could consider more launches.
The company has huge land bank of ~152 msf after removing the identified pipeline of new product launches. DLF’s land bank is characterized by low carrying costs, excellent location, and a wide range of property uses provides an opportunity to capitalise on the expected real estate upcycle.
|Location||Development Potential (in msf)||%|
|Delhi Metropolitan Region||13||7%|
|Chandigarh Tri-City Region||16||9%|
|Identified Pipeline of New Product Launches||35|
Source: Investors’ Presentation
New Product Launches in Residential Segment to Aid Sales Trajectory
The residential segment of the real estate industry saw a surge in demand in H2FY21, aided by high affordability. During the year, the trend of new sales outpaced the number of launches, resulting in a decrease in unsold inventory levels. According to Anarock's research report, unsold inventory has decreased by 19% since its peak in 2016. The key demand drivers viz. affordability, consumer sentiments, and desire to own a home, are in place and expected to fuel the growth of housing segment in the foreseeable future. Also, the preference of home buyers from major and established developers was one of the growing trends in the residential segment that was noticeable. According to ICRA estimates, demand consolidation in favour of major developers increased to ~22% in 9MFY21.
During the last decade (FY10 – FY20), the net sales booking value of DLF has declined from Rs. 7,150 crores in FY10 to Rs. 2,485 crores in FY20 due to several reasons such as subdued demand, liquidity crunch, unfavourable business cycle, and certain regulatory initiatives by various authorities. However, in FY21, despite Covid-19 pandemic, the company’s net sales booking grew 24% YoY to Rs. 3,084 crores and the same traction continued in Q1FY22 with the net sales booking of Rs. 1,014 crores.
The housing segment is exhibiting strong signs of recovery and to leverage this upcycle, DLF has identified a strong pipeline of 35 msf of new products with a revenue potential of Rs. 36,000 – Rs. 40,000 crores. The pipeline comprises a diversified offerings across geographies and segments. The initial phase of these developments comprises low-rise developments, enabling a faster execution cycle, resulting in quicker cash conversion. The management expects these new products to create substantial cash flows to fuel the next growth cycle. The new product pipeline will enable monetisation of ~20% of existing land bank over the medium term (refer the table below) –
|Project||Project Size (~msf)||Sales Potential (~Rs. in Crores)||H2FY21||H1FY22||H2FY22||FY23||FY24||Beyond FY24|
|DLF - GIC Residential JV, Central Delhi||8||12,000 - 15,000||-||-||2.1||-||-||6.0|
|DLF - Hines/ADIA Offices JV, Gurgaon||3||6,000 - 7,000||-||-||-||-||-||3.0|
DLF 5/ New
|NOIDA IT Park||3.5||2,000 - 5,000||-||-||-||0.3||-||3.2|
|10||10,000 - 10,500||1.5||1.2||0.6||3.9||3.0||-|
|Total||35||36,000 - 40,000||1.5||1.7||6.6||6.4||7.2||12.2|
Source: Investors’ Presentation
Rental Business to Witness High Growth Over Medium-to-Long Term
The rental business is primarily carried out by DLF Cyber City Developers Ltd. (DCCDLA), a material subsidiary. As of March 2021, DCCDL had an operational portfolio of 34.2 msf which includes office portfolio (30.3 msf) and retail portfolio (3.9 msf). In FY21, rental revenue recorded a marginal increase to Rs. 3,029 crores, mainly due to addition of new assets. The average occupancy level stood at 88%. Due to the pandemic, retail segment was adversely impacted and the company offered a support package to its retail tenant partners.
DLF maintains a positive outlook towards its rental business and the management has expressed confidence that the DCCDL's annual rental income would reach Rs. 4,500 crores over the next three years. On the back of positive outlook, the company continues to build new assets. Currently, DCCDL has commenced Phase-I construction of office projects in Downtown Gurugram (1.5 msf) and Downtown Chennai (3.1 msf). Further, the construction of Chennai Block 12 is completed and the rentals will start coming in from current fiscal. The company’s total portfolio size will increase to 39.1 msf and if we consider the assets of acquired entity’s – One Horizon Centre – leasable assets of ~0.8 msf, then total portfolio size will increase to ~40 msf.
The pre-leasing in Downtown Gurugram and Downtown Chennai is strong despite 2-3 years from commissioning. As of June 2021, pre-leasing of Downtown Gurugram was ~0.5 msf or ~33% and pre-leasing of Downtown Chennai is 0.77 msf or ~25%. The rental business witnessed some temporary disruptions in FY21 due to the pandemic and ripple effect was seen in vacancy levels, which increased to 11%-12%. The company offered rental waivers to retail tenants during the fiscal which helped them overcome the challenging times and helped the company to retain large part of existing tenants. The occupancy for FY22 could be in the similar levels of FY21 and pick up is expected in new leasing by FY23 aided by a successful rollout of the vaccination drive across the country.
Healthy Balance Sheet
As of June 2021, receivables stood at Rs. 3,361 crores compared to construction payables of Rs. 1,075 crores. along with pending receivables, DLF has finished unsold inventory amount to ~Rs. 5,286 crores. With improved cash generation from operations in recent quarters as well as reduced finance cost aided by ~160 bps reduction in the interest cost since March 2020, net debt levels stood at Rs. 4,745 crores as on June 2021 vs. Rs 5,267 crore as on March 2020. It also has healthy available cash and bank balances of Rs. 1,288 crores at DLF Group level.
DLF witnessed a strong uptick in demand in residential business in the later part of FY21 and the momentum continued in Q1FY22. The company has identified a strong pipeline of 35 msf of new products in residential segment with a revenue potential of Rs. 36,000 – Rs. 40,000 crores in medium-to-long term. In rental business, DLF continued its focus on growth through better yields and new products. The occupancy is expected to pick up aided by a successful rollout of the vaccination drive across the country. DLF’s significant land bank provides an opportunity to capitalise on the expected real estate upcycle. Also, its strong liquidity position and healthy balance sheet adds to the confidence. At the current market price of Rs. 350, the stock is trading at EV/EBITDA of 37x on FY23E basis.
|Year End March (Rs. in Crores)||2019||2020||2021||2022E||2023E|
|Depreciation & Amortization||224.63||200.30||159.48||164.00||181.00|
|EBIT Margin %||22.91%||15.37%||23.24%||28.16%||29.76%|
|Interest & Finance Charges||2061.87||1426.94||853.36||712.06||622.16|
|Profit Before Tax - Before Exceptional||518.33||313.13||935.78||1837.91||2271.90|
|Profit Before Tax||645.65||653.46||839.57||1837.91||2271.90|
|Effective Tax rate||53.50%||681.10%||38.70%||32.00%||32.00%|
|Net Profit Margin||4.40%||-24.32%||8.82%||18.52%||20.49%|
|Consolidated Net Profit||1319.20||-583.20||1093.60||1935.44||2310.04|
|Net Profit Margin after MI||15.77%||-9.59%||20.20%||28.69%||30.63%|
|As of March (Rs. in Crores)||2019||2020||2021||2022E||2023E|
|Non Current Liabilities|
|Long Term Borrowing||5614.38||3890.12||3294.80||3268.53||3268.53|
|Deferred Tax Assets / Liabilities||-1937.18||246.54||540.76||540.76||540.76|
|Long Term Provisions||44.88||60.20||50.85||50.85||50.85|
|Short Term Borrowings||9163.71||2439.36||2344.90||2344.90||1844.90|
|Other Current Liabilities||15378.62||12152.53||9150.99||8127.26||8127.26|
|Short Term Provisions||33.66||86.70||53.77||53.77||53.77|
|Total Equity & Liabilities||64545.54||55890.46||53487.65||53244.22||54019.08|
|Non Current Investments||24666.23||20727.94||21583.16||21583.16||21583.16|
|Long Term Loans & Advances||3234.08||3458.61||2834.22||2834.22||2834.22|
|Cash and Bank||4855.37||2420.43||1406.87||1041.24||2719.63|
|Short Term Loans and Advances||3016.80||2568.09||2378.35||2378.35||2378.35|
|Year End March (Rs. in Crores)||2019||2020||2021||2022E||2023E|
|Profit After Tax||368.27||-1479.21||477.29||1249.78||1544.89|
|Changes in Working Capital||-24.12||-1064.35||-702.02||165.65||1347.56|
|Cash From Operating Activities||2043.00||355.68||1460.18||1579.43||3073.45|
|Purchase of Fixed Assets||-604.14||-206.31||-13.51||-400.00||-400.00|
|Free Cash Flows||1438.86||149.38||1446.67||1179.43||2673.45|
|Cash Flow from Investing Activities||4.85||6516.82||153.96||-400.00||-400.00|
|Increase / (Decrease) in Loan Funds||38.24||-9189.92||-900.86||-1050.00||-500.00|
|Equity Dividend Paid||-169.56||-807.71||-198.75||-495.06||-495.06|
|Cash from Financing Activities||875.42||-9521.75||-2183.79||-1545.06||-995.06|
|Net Cash Inflow / Outflow||2923.26||-2649.25||-569.64||-365.63||1678.39|
|Opening Cash & Cash Equivalents||1344.95||4266.34||1608.37||1035.24||669.61|
|Closing Cash & Cash Equivalents||4266.34||1608.37||1035.24||669.61||2348.00|
|Year End March||2019||2020||2021||2022E||2023E|
|Cash EPS (Rs)||6.84||-1.55||5.06||8.48||10.06|
|Book value (Rs/share)||148.90||139.24||142.87||145.92||150.16|
|ROCE (%) Post Tax||2.43%||-22.67%||2.68%||4.19%||4.68%|
|Dividend Yield (%)||0.99%||1.46%||0.70%||0.57%||0.57%|
|Net Debt/ EBITDA||5.76||4.62||3.20||2.40||1.14|
|Sales/Net FA (x)||3.13||2.33||2.21||2.79||2.85|