Wanted: A new spark for DLF stock

DLF Ltd, the poster boy of the K-shaped post-pandemic 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 the majority of bookings accruing from existing projects. There were no new material launches in Q2. But the second half is looking great, a big part of DLF’s FY24 launch target of 11.2 million square feet (msf) with sales potential of 19,710 crore, it is implemented.

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(Graphic: Mint)

Against this background, the company could exceed its pre-sales guidance 13,000 crore for FY24. “DLF has a competitive advantage over other companies due to its extensive inventory and significant land holdings across Gurugram. We expect DLF to receive a strong response to its project launches in DLF 5 and New Gurugram,” the Antique Stock Broking report said.

Moreover, at 2,359 crore, the cash collections in Q2 were the highest ever. Cash generation helped DLF achieve the long-awaited positive net cash position. In addition, the management has given guidance to 6,400-6,500 crore raised in FY24.

DLF plans to enter Mumbai through the SRA (Slum Rehabilitation Authority) project under the joint development model. The project in Andheri (West) will have a total salable area of ​​3.0-3.5msf, and the company plans to launch nearly 0.9msf in the next 9-12 months, management said. Given the heightened intensity of competition in the Mumbai Metropolitan Region and the challenges associated with SRA projects, investors would prefer to track developments here.

Sure, it’s smooth sailing on the residential portfolio, but the same can’t be said for its commercial side. The demand for office spaces, which has been muted recently, is showing some green shoots.

Here, slow hiring in the IT sector, a key driver of demand for Grade A office leasing, could play spoilsport. So far, new demand for office spaces is coming from the Global Capacity Centers, management said. Also, DLF’s joint venture with Hines is expected to complete several projects in a phased manner in Q1FY25.

More importantly, developments related to the implementation of the Development of Enterprise and Service Hubs (DESH) Bill, which is crucial for the leasing of special economic zones (SEZ), are a key driver. A high level of vacancy is seen in operational SEZ spaces as the lack of clarity on the DESH Bill is keeping potential clients from committing new leases and delaying renewals. According to DLF management, the commerce ministry is in the final stages of allowing floor-wise identification. Floor-by-floor identification means that more vacant space in a building becomes leasable. Currently, partial identification is not allowed, which limits the scope for leasing vacant space.

In the SEZ space, DLF is marginally better off than rivals with a vacancy of around 14-15%, management said. Over the next 4-5 quarters, management hopes to see better traction in SEZ leasing once clarity comes in. To be sure, real companies exposed to SEZs would benefit from the implementation of the DESH Bill. But due to the increased consolidation in the sector and the brand value of the company especially in Delhi and National Capital Region, it could attract more clients.

DLF stock has so far risen 59% in 2023 due to the continued momentum in demand for high-end and ultra-luxury residential properties. This leaves little room for disappointment as investors wait for a new trigger.

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