DLF launch pipeline and rental growth expected to revive pre-sales after weak quarter

Investment View and Key Takeaways

Motilal Oswal Financial Services retains its Buy rating on DLF with a fair value of Rs 755 per share, compared with the CMP of Rs 643. The broker believes that upcoming residential launches should revive pre-sales after a weak first quarter of FY27.

DLF reported pre-sales of Rs 660 crore in 1QFY27, down 94% year on year and 56% below Motilal Oswal's estimate, primarily because several launches were deferred. Management has retained its FY27 booking guidance of Rs 20,000 crore, while Motilal Oswal forecasts a more conservative 2% pre-sales CAGR over FY26-28E to Rs 20,905 crore in FY28E.

The broker's valuation uses a sum-of-the-parts approach, valuing the development portfolio on NAV and the rental portfolio on FY28E EBITDA. It assigns no growth premium to NAV because the land bank potential is considered to be already reflected in estimates.

Residential Launch Pipeline and Pre-Sales Outlook

DLF has a potential FY27 launch pipeline of approximately Rs 20,000 crore. Key projects include DLF City, with potential of Rs 8,000 crore to Rs 9,000 crore, Arbour Senior Living, Westpark Phase 2 and Goa. The company also has a medium-term launch pipeline of Rs 60,200 crore and unsold inventory worth Rs 12,400 crore from projects that have already been launched.

• The Arbour Senior Living launch was deferred while approvals remain pending. Management expects the launch within weeks of receiving the necessary approvals.
• Hamilton and Arbour 2 are targeted for the second half of FY27.
• The next, more premium phase of Privana is planned for early CY27 or 4QFY27.
• The Goa launch depends on clarity over pending PIL litigation, although management expects the project could contribute approximately Rs 2,000 crore to FY27 pre-sales.
• DLF has deployed approximately Rs 550 crore in land advances over the past two quarters and is evaluating additional growth opportunities, including in Mumbai.

The Dahlias continues to see strong demand, with approximately 65% of inventory sold. Realisations exceeded Rs 1,00,000 per sq ft and reached Rs 1,25,000 per sq ft on higher floors. Management is prioritising price appreciation over sales velocity.

Leasing Portfolio and Rental Growth

The leasing portfolio provided a positive counterbalance to the weak residential quarter. DCCDL rental income increased 9% year on year to Rs 1,440 crore in 1QFY27, while aggregate rentals from DLF, DCCDL and Atrium stood at Rs 1,630 crore.

Office occupancy was 95%, comprising 98% in non-SEZ assets and 89% in SEZ assets. Retail occupancy was 97%. Management stated that office rentals increased approximately 8.5% to 9% year on year, while leasing enquiries from large GCCs and multinational occupiers improved after an interim geopolitical disruption.

• New leases at Downtown Gurugram Phase II are being signed at approximately Rs 200 per sq ft per month, compared with Rs 150-155 in existing Downtown assets and Rs 140-150 in Cyber City.
• Atrium Place is fully leased.
• Midtown Plaza is operational and approximately 96-97% leased.
• Summit Plaza has commenced soft operations.

DLF expects existing assets to deliver approximately 10-11% rental growth in FY27. Management expects FY27 exit rentals of around Rs 7,300 crore to Rs 7,500 crore and medium-term rental income of Rs 10,000 crore. Motilal Oswal estimates rentals of Rs 7,100 crore in FY27E and Rs 7,900 crore in FY28E.

1QFY27 Financial Performance and Balance Sheet

Reported 1QFY27 revenue declined 53% year on year to Rs 1,280 crore, while EBITDA fell 59% to Rs 150 crore. The EBITDA margin was 11.7%. PAT increased 4% to Rs 790 crore.

Despite lower residential collections, DLF generated Rs 1,050 crore of surplus cash and ended the quarter with net cash of Rs 15,200 crore. DCCDL net debt declined marginally to Rs 18,100 crore, although its cost of debt increased to 7.14%. Motilal Oswal estimates surplus cash potential of approximately Rs 43,800 crore from inventory launched through 1QFY27, with residual gross margin of Rs 39,000 crore yet to be recognised.

Estimates, Valuation and Potential Catalysts

Following the quarter, Motilal Oswal reduced its FY27E and FY28E estimates for pre-sales by 5% and 6%, respectively, collections by 2% and 3%, and adjusted PAT by 4% and 2%.

The development portfolio is valued on NAV using a 10.8% WACC, while the rental portfolio is valued at a 7.5% capitalisation rate on FY28E EBITDA. Adding DLF's FY27 net cash share of Rs 7,809 crore to total enterprise value results in a fair value of Rs 755 per share.

New project additions in the Mumbai Metropolitan Region or other markets could drive changes to the valuation. The broker believes the launch pipeline, rental growth and strong balance sheet provide support for a recovery in pre-sales, while its estimates remain conservative relative to management's FY27 booking guidance.

Key Risks and Dependencies

• The timing of residential launches remains dependent on approvals, particularly for Arbour Senior Living.
• The Goa launch is dependent on clarity over pending PIL litigation.
• Pre-sales recovery could be delayed if the planned launch pipeline is deferred further.
• DCCDL's cost of debt has increased to 7.14%, despite a marginal decline in net debt.