DLF Ltd, the poster boy of the post-pandemic K-shaped economic recovery, is on solid ground. In the September quarter (Q2FY24), pre-sales or bookings rose 9% year-on-year to ₹2,228 crore, with a majority of the bookings accruing from existing projects. There were no material new launches in Q2. But the second half looks impressive, as a large part of DLF’s FY24 launch target of 11.2 million square feet (msf) with a sales potential of ₹19,710 crore, gets into execution.
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In this backdrop, the company could exceed its pre-sales guidance of ₹13,000 crore for FY24. “DLF holds a competitive advantage compared to other companies because of its extensive inventory and significant land holdings throughout Gurugram. We expect DLF to receive strong response to its project launches in DLF 5 and New Gurugram,” said an Antique Stock Broking report.
Further, at ₹2,359 crore, cash collections in Q2 were the highest ever. Robust cash generation helped DLF achieve the much-awaited net cash positive status. What’s more, the management has guided for ₹6,400-6,500 crore of collection in FY24.
DLF plans to enter Mumbai through an SRA (Slum Rehabilitation Authority) project under the joint development agreement model. The project will have a total saleable area of 3.0-3.5msf in Andheri (West), of which the company plans to launch nearly 0.9msf in the next 9-12 months, the management said. Given the elevated competitive intensity in Mumbai Metropolitan Region and challenges relating to SRA projects, investors would be better off tracking developments here.
Sure, the sailing has been smooth on the residential portfolio, but the same cannot be said for its commercial segment. The demand for office spaces, which has been muted lately, is showing some green shoots.
Here, the slow hiring in the IT sector, a key demand driver for Grade A office leasing demand, could play spoilsport. For now, new demand for office spaces is coming from the Global Capability Centers, the management said. Also, DLF’s joint venture with Hines is expected to complete some projects in a phased manner in Q1FY25.
More importantly, developments relating to implementation of the Development of Enterprise and Service Hubs (DESH) Bill, which is crucial for special economic zone (SEZ) leasing, is a key trigger. Operational SEZ spaces are seeing a high level of vacancies as lack of clarity on the DESH Bill is keeping potential clients from new leasing commitments and delaying renewals. According to the DLF management, the commerce ministry is in the final stages of allowing floor-wise denotification. A floor-by-floor denotification means that more space becomes vacant in a building that can be leased. Currently, partial denotification is not permitted, which restricts the scope for leasing vacant space.
In the SEZ space, DLF is slightly better off than competitors with vacancy of about 14-15%, the management said. Over the next 4-5 quarters, the management is hoping to see better traction in SEZ leasing once clarity sets in. To be sure, realty companies with exposure to SEZs would benefit from the implementation of the DESH Bill. But given the increased consolidation in the sector and the company’s brand value especially in the Delhi and National Capital Region, it could attract more clients.
For now, the ongoing momentum in demand for high-end and super luxury residential property has meant the DLF stock is up 59% so far in 2023. The optimism related to demand and pricing in its key residential markets seems to be largely captured. This leaves little room for any disappointments as investors await new triggers.