Even a recent 25 percent rise in realty stock DLF has failed to impress market analysts. In a recent report, brokerage house Motilal Oswal retained its 'neutral' call on the stock with a target price of ₹385, indicating a potential downside of 3 percent.
"While we remain confident about the growth trajectory in both its Residential as well as Commercial business, a large part of it already seems priced into the valuation. Thus, the implied value of land remains the only key metric for a further upside in the stock," the brokerage explained.
In the June quarter, DLF saw its net profit rise 39 percent to ₹470 crore versus a net profit of ₹337 crore in the year-ago period. The company’s consolidated total income rose 22 percent YoY to ₹1,516 crore versus ₹1,242 crore in the corresponding period last year.
The stock has risen 15 percent in the last 1 year as against a 12 percent rise in Nifty Realty. In this period, 4 Nifty Realty stocks have outperformed DLF. Phoenix Mills has risen the most, up 55 percent followed by Brigade Enterprises, up 35 percent. Oberoi Realty and Sunteck Realty have also surged over 20 percent. However, Godrej Properties, Sobha and Indiabulls Real Estate gave negative returns in the same time.
The brokerage noted that the housing segment continues to witness strong demand well supported by tailwinds from the fundamental demand drivers.
Consolidation amongst larger and credible brands continues to be a key trend in the housing segment primarily driven by rising confidence towards developers will strong execution legacy, it added.
In FY22, DLF’s pre-sales increased 136 percent to ₹7200 crore driven by the strong response to Camellias and new products (especially independent floors) and its identified launch pipeline will help it sustain the momentum, stated the report.
"The company continues to maintain a positive outlook for rental business and is consequently deploying capital to strengthen and grow the office portfolio (developing 5.3 msf across Gurugram and Chennai). Given the recovery across the retail segment and consumption trends in our country, DLF has also initiated the development of a new set of malls across geographies with an aim to double retail presence in the next 4-5 years," informed MOSL.
In line with the growth plans, DLF has stepped up organizational capabilities by onboarding new function heads and has also strengthened the project management and sales team to ensure strong execution, it added.
Recently, DLF's Chairman Rajiv Singh has said rising mortgage rates could pose "near-term" challenges to demand momentum in the housing sector but the company expects no major adverse impact.
He noted that the residential segment has witnessed structural recovery on strong demand and the credible players are gaining market share.
"Rising mortgage rates do appear to pose near-term challenges to this demand momentum; however, we do not anticipate any significant material adverse effect given the latent demand in our sector as well as the inherent strength of the Indian economy," Singh said.
The Reserve Bank of India has increased the repo rates by 140 basis points since May to control inflation. As a result, the interest rates on home loans have increased to around 8 percent from about 6.5 percent in the last few months.
In line with this rebound in demand, the DLF Chairman said the company has introduced new product offerings across multiple geographies and multiple product markets and consequently delivered healthy growth in new sales bookings for this fiscal.
DLF is the largest real estate company in terms of market capitalisation. It has so far developed more than 153 real estate projects comprising over 330 million square feet of area.
The group has 215 million square feet of development potential across residential and commercial segments. The group has a rent-yielding commercial portfolio of over 40 million square feet.
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