Is DLF’s dull show in the September quarter a one-off?

The management has retained pre-sales guidance for the full year despite DLF’s pre-sales at ₹7,094 crore in the first half of FY25 (H1FY25) being less than the target of ₹17,000 crore for the second half of the year, which is a 15% increase year-on-year.

The management’s confidence is driven by a slew of new launches reviving its bookings, with the crucial one being the super-luxury The Dahlias project in DLF Phase 5, Gurugram. The project has received the required approvals and is in the pre-launch stage. It is estimated to have gross development value (GDV) orrevenue potential of ₹26,000 crore with 70% gross margin, the management said in the Q2 earnings call. The project is already witnessing healthy traction in the expression of interests, higher than initial expectations, the management added.

The launch pipeline for FY25 also includes new phases in the Privana project, the Goa luxury project and the Mumbaislum rehabilitation project in Andheri West.The Dahlias launch is expected in Q3FY25, but other three project launches have been pushed to Q4 due to approvals.

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For FY25, the overall launch pipeline is around 12msf with a GDV of ₹41,000 crore and a large part is focused at the uber-luxury segment. Beyond FY25, the launch pipeline is around 25msf with a GDV of Rs63,500 crore.

The risks

While the pipeline seems robust, delayed regulatory approvals can derail the launch momentum, and is a key downside risk for DLF. True, DLF is gradually expanding presence in newer locations, but most of its offerings are still in the National Capital Region.

“Although we expect a strong response to all the project launches by DLF in Gurugram in the near-term, including The Dahlias and Privana, the company faces high geographical concentration risk and achieving sustained strong growth (over 20%) on a high base in the next 2-3 years looks challenging," said Antique Stock Broking report dated 28 October. Further, DLF has a limited unsold inventory of around ₹2500 crore, so the fate of DLF’s pre-sales significantly hinges on the response to new product launches.

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Meanwhile, muted pre-sales in Q2FY25 also weighed on DLF’s collections, which fell 22% sequentially to ₹225 crore. However, the expected traction in new launches is likely to revive collections with the management pencilling in collections of ₹2,500 crore Q3FY25 onwards.

In the office portfolio, occupancy in its non-SEZ/SEZ portfolios was flat sequentially at 97% and 86%. SEZ is a special economic zone.

The rental portfolio (commercial and retail) is expected to see improved growth as occupancies rise in H2FY25, and the management foresees FY25 and FY26 exit rental of ₹5,300 crore and ₹6,800 crore respectively. The portfolio saw rentals of ₹1,180 crore in Q2FY25.

DLF’s balance sheet remains in good standing with a net cash status and availability of large land banks, but these positives are more or less factored in. So far in FY25, the DLF stock has declined 12% versus a 5% rise in the Nifty Realty index. Concerns of a slowdown in the Gurugram market and expectations of a weak Q2FY25 played spoilsport. 

“While the Street was expecting a soft quarter, given the launch pipeline was H2 heavy, the current print is still lower than the beaten-down expectations," according to Kotak Institutional Equities.

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