Morgan Stanley maintains an overweight rating with a price target of Rs 211. Demand outlook has improved sequentially for both residential and commercial. DLF is now gearing up with a large 35 msf development cycle with Rs 360-400 bn sales potential in next few years. Rental portfolio also continues to gain scale.
Business outlook:
Management articulated Rs 7.5 bn in new sales guidance for Q3 and Q4 each, implying F21 target of Rs 25 bn (approximately the same as pre Covid-19 levels). DLF has an unsold completed inventory of Rs 66 bn, of which Camellia is Rs 44 bn. Plus, it has planned a new development pipeline of 35 msf with Rs 360-400 bn sales potential. Of this, it plans to launch 12 msf over the next 18 months. Net debt was Rs 52.15 bln (marginally down QoQ), which the company expects to remain flat in the second half. Operating cost should get re-based 30% below F20 levels in the current year. DLF expects 120 bps reduction in its borrowing costs by the end of the year on the overall group debt of Rs 250 bn.
Residential highlights:
Construction is at 80%+ of pre-Covid-19 levels. Net presales were Rs 8.53 bn vs avg of Rs 5.48 bn. Revenue recognition of its high-value project, Camellia (Rs 48 bn sold and not recognized),has started (Rs 7.1 bn in Q2). This should continue over the next 5-6 quarters. Club House is expected to be ready by Dec ’20, and this should help sales of the Rs 44 bn inventory balance.
Management expects the residential new projects and a few commercial projects to be self funding (given launch at construction commencement). Hines JV and Noida commercial should require upfront capex.
Rental assets:
Commercial rental collections are resilient at 98%+, implying negligible impact from WFH dynamics thus far. For its retail mall business, footfalls are at 35-40% of pre Covid-19 levels.  Cyber Park (2.5 msf) commenced operations in Aug ’20 and should generate an incremental Rs 3.7bn in annual rentals. DLF aims to make its rental asset owning company, DCCDL, REIT-ready over next 15-18 months.
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Q2 FY21 highlights: 
HDFC Securities maintains buy on DLF with target of Rs 219. They say DLF registered consolidated revenue at Rs 16.1 bn, EBIDTA margins also improved to 28.4% on the Camellias revenue recognition.DLF reported sales booking at Rs 8.5 bn, rise of 18% YoY. However, excluding the AMEX commercial sales, bookings declined by 35% YoY to Rs 4.7 bn. Of Rs 66 bn completed inventory, Rs 44 bn is from Camellia. DLF is planning to launch 10 msf of mid-income housing from H1FY22 and expand its commercial portfolio with the launch of Hines JV and new developments in DLF 5.
Balance sheet position comfortable:
Consolidated net debt remained stable at Rs 52 bn at the end of quarter (vs Rs 52 bn on Jun-20 end), with net D/E at 0.15x. Net debt is likely to remain at the same level given the planned residential launches which will largely self-finance. The company also brought down interest cost from 9.7% in Q1 FY21 to 9.1% during the quarter. DLF generated positive operating cash flow of Rs 2 bn during first half FY21.


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