Stock at Stake: Should You Add DLF to Your Portfolio Real Estate

In the news:

DLF share has been in the news as the stock has risen 2% in a day. In the last one month, stock price has gone up more than 14% as investors are bullish about the realty sector as well as the company as it is a dominant player in the space. So, let’s have a look at the fundamentals of the company to understand it.

External Environment
The situation of the whole real estate sector is quite bullish. There are various factors but in short, we can say that past results as well as future outlook both are positive. Anarock reported that housing sales increased 48% (YoY) in the last fiscal year. Nuvama reported that inventories have fallen to 13 months from 24 months in FY20 (pre-covid time). Growth in the luxury segment is even more impressive as CBRE reported 151% (YoY) rise in luxury housing sales. Commercial real estate is yet to pick up. Industry insiders are still not sure about its revival. Overall, IBEF predicts the real estate market size to reach $1,000 billion by 2030. Policies like RERA and Benami Transaction Act are positive for the sector. an amount of Rs 79,000 crore has been allocated to PM Awas Yojna in Budget 2023-24.

Company Profile
Company was founded in 1946 and today it is the largest company in the real estate space having a presence in 15 states and 24 cities.

1) Residential Business (215 msf+ development potential): Apartment, Plotted, Township, Low-Rise

2) Office (42 msf operational rental portfolio): Cyber cities, Cyber Parks, IT SEZs, Commercial Parks

3) Retail (334 msf area developed and 46 msf product pipeline): Mall

4) Others (118 msf+ since IPO): Service & Facility, Management, Hospitality

msf: Thousand Square Feet

Shareholding Pattern (As of March 31 2023):

Growth Triggers

1) Record-breaking response in Arbour (Luxury High rise development) with more than Rs 8,000 cr sales potential

2) Performance in new projects ahead of initial guidance.

3) Projects with sales potential of Rs 19,700 crore spanning across 11.2 msf planned for FY23-24 across segments

4) Beyond FY 24 projects with sales potential Rs 23,900 crore are planned spanning 12 msf across segments

5) Company expects scaling up product and developing high-margin projects to create value in development business

6) Company expects double-digit rental growth

Competitive Advantage

1) Strong brand value of providing top-class luxury appartments

2) Fully paid-up land bank to help with cost during rising land price environment

3) High-quality products at a reasonable cost in the office market 

4) Unique experience of dealing with Indian real estate market complexities gives edge above competitors

5) Connect with various stakeholders such as government, general public, raw material suppliers, etc creates core competency for the company.

Risks:

1) Interest rate hike

2) Volatile raw material prices

3) Fall in demand due to high inflation

4) Sluggish commercial real estate demand

Financials (Consolidated):

Valuation:

Company is dominating real estate space and with growth in real estate sector company is poised to grow. It has various growth triggers like a strong project pipeline. At the same time its brand value and focus on cost efficiency along with cash flow generation would create value for investors. However, at the moment targets given by the brokerages have been met and it’s P/E is quite high.

Brokerage Recommendation