The high-margin luxury segment to develop Dlf’s prospects

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Property developer DLF Ltd expects its residential sales to see double-digit growth in FY23. This was one of the main conclusions of its analyst meeting held on May 27. New launches of 7.6 million square feet (msf) expected in the current fiscal year would boost sales bookings. In FY22, DLF presales to 7,273 crores more than doubled on a yearly basis (yoy), hitting a multi-year high. With this, the company exceeded its sales forecast of 6,000 to 6,500 crores.

Analysts say that while DLF has not shared concrete pre-sales guidance for FY23, double-digit growth of over 10% on a FY22 basis is directionally positive. In response to management’s comment, DLF stock ended Monday’s trading session up 7% on the NSE.

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Even so, the stock is 23% off its 52-week high of 449.70 seen in October 2021. DLF’s sales outlook is strong, but there are risks from rising mortgage interest rates and inflation-induced price hikes. Thus, a significant rise in the stock would occur gradually, analysts said.

DLF’s management foresees a significant impact on sales if mortgage interest rates were to exceed 8%. In the case of property developers, a borrowing rate above 10% will have a significant impact on the yield profile, management said. The cost of construction rose 10-15% year-over-year, but because DLF’s product line is high-margin, a 5% increase in portfolio price should be enough to offset the impact, management said. DLF management said it would continue to focus on the luxury and middle-income segment, which enjoys higher margins than the affordable housing sector.

“These risks do not only concern DLF, but the revaluation of the title depends to a large extent on the evolution of the land reserves. DLF enjoys the advantage of having a large portion of the land reserve in the key National Capital Region. However, if these risks materialize, they could impact the expected sell-off trajectory, which is a drag on the stock,” an analyst at a national brokerage said on condition of anonymity.

Given DLF’s ability to raise prices for the ONE Midtown, Delhi project, analysts at Motilal Oswal Financial Services have raised their pre-sale estimates for FY23/24 by 6-9%. “While near-term growth prospects across all segments remain intact, uncertainty surrounding the rising interest rate cycle will lead to limited revaluation of land,” the national brokerage said in a report from the May 29.

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