DLF Limited (DLF) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to DLF Limited Q1 FY '27 Earnings Conference Call. We have with us today on the call, Mr. Ashok Tyagi, Managing Director, DLF Limited; Mr. Sriram Khattar, Chief -- sorry, Vice Chairman and Managing Director, Rental Business; Mr. Aakash Ohri, Managing Director and Chief Business Officer; and Mr. Badal Bagri, Group CFO, DLF Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Badal Bagri. Thank you, and over to you, sir.

Good evening, and thank you for joining us today. We are pleased to report a resilient performance during the first quarter. This performance continues to link the underlying asset quality, disciplined execution, our brand strength, and prudent capital allocation across a well-diversified mix of development and annuity businesses. I'll briefly talk about the operating highlights and thereafter the financial highlights. Overall collection for the current quarter stood at INR 2,406 crores. Operating cash flow continues to be strong at over INR 1,300 crore in the quarter. Consequently, our net cash position at the end of the first quarter stood at INR 15,200 crores, of which close to INR 11,000 crores is sitting in the RERA, 70% escrow accounts. New sales bookings for the quarter were INR 657 crores, reflecting the timing impact of deferment of our launch of Areva, our senior living product. We are awaiting the final approvals and expecting them to be received over the next few weeks. Our rental portfolio stands at over 50 million square feet and continues to operate at an industry-leading occupancy at over 95% in terms of space and over 97% in terms of value. Our revenue stood at INR 1,605 crores, yielding an EBITDA of INR 476 crores for the quarter. Net profit for the quarter was INR 794 crores versus INR 766 crores in the same period last year. It's important to reiterate here that given the current applicable laws and standards, we continue to follow a conservative practice of completed contract method of accounting, which reflects the recognition of revenue and profits from the projects once it's completed in that relevant period. We strongly believe that FY '28 would be an inflection point from a reporting perspective, wherein all our large products, starting from the Arbour will start to contribute to the P&L and consequently, we will start to unlock the significant gross margin potential that we have been highlighting over the last several quarters now. Just to remind, the gross margin potential as it stands to is approximately INR 39,000 crores. It's important to highlight that in the current quarter, in the month of July, we also got the operation certificate for our mall in Goa. With this, all 3 malls in DLF Limited will be operational in the current financial year, leading to a significant increase in run rate of rental business within the DLF entities itself. As a result, from the core quarter, we have started reporting segment financials in DLF Limited defecting individual performance of both development and rental businesses. We have also added one slide in our presentation to show the combined scale of our rental business across DLF, DCCDL and HCM from this quarter. Moving to DCCDL. Our consolidated revenue stood at INR 1,917 crores, reflecting a growth of 10% year-over-year, yielding an EBITDA of INR 1,474 crores. Net profit continues to be a strong performance of INR 770 crores, a growth of over 20% year-over-year. With this, I hand it over to Sriram to give you details of the annuity business.

Good evening. I'll very quickly take you through the rental businesses. I'll start with offices. Last 2 quarters, there has been a fair amount of debate on the impact of AI on the hiring of the various multinationals and GCCs and how it is impacting and from February onwards, the war between Iran and U.S. and the ever-changing dynamics there. These 2 did slow down the decision-making of the global companies because as you investors and analysts will appreciate, no one likes uncertainty. But last about 4, 5 weeks, I personally see the green shoots of the international companies coming back and making inquiries and starting to take decisions. And I believe that Q2 and Q3 will be good quarters from that point of view. As Badal has just explained to you, the vacancy levels are very low. And fortunately, for us, are newer projects, which is Cyber Park, Atrium place, Downtown Gurgaon, Downtown Chennai are nearly 100% leased. Our CapEx program on Downtown Gurgaon Phase 2 and Downtown Chennai Phase 2 are going at full speed. And the leasing here in Gurgaon is 40%, the leasing in Taramani pre-leasing is at about 17%, 18%. But as I said, we will see a reasonable momentum in Q2 and Q3. The rentals in the portfolio grew by about 8.5%, 9% from Q1 of FY '26. In retail, as Badal mentioned, the 3 new malls, they are getting operational slowly. The one in Midtown Plaza is now fully operational. It's about 85% open with more than 97%, 96% leasing. The Summit Plaza, we did the Puja -- opening Puja and soft launch yesterday. We think it will come to its full bloom in the next 2, 2.5 months. That is also about 90% leased. In Goa, while we have got the OC, the finishing works are in progress, leasing is in progress. And we are targeting to open the mall in either end of this year or early next year. The retail business, the consumption in the first quarter and the spend have been good. We have done as per our budgets are slightly better and the growth from previous year continues -- is about 13.5%, 14%. We continue on our journey of sustainability and green the -- this is something which there is a relentless effort to do so in addition to having 0 tolerance to safety and compliance. Our profit PAT for the quarter in DCCDL was INR 770 crores, a growth of more than 20% from the PAT of Q1 of FY '26. It is slightly lower than Q4, and that's because there's onetime entries of DTA and such other entries, which sort of bumped up the profit to about INR 780 crores. Our rating from CRISIL and ICRA continue to be tripling and they have a reasonably fine rate of borrowing at the portfolio level. Our borrowing is for this quarter at a rate of 7.14%. I'll be happy to answer any queries as the analysts would have. Thank you.

[Operator Instructions] First question is from the line of Puneet.

This is Puneet from HSBC. My first question is on the presales. While we understand you didn't launch anything, but how should one think about the sustaining sales for alias that used to be almost 12 to 15 units every quarter. It seems this was a lower number this time. Is there a deliberate slowdown? Or how should one think about this?

Okay. So [indiscernible] should I take that?

Yes, of course.

Okay. So Puneet, see, we did about 34 areas last quarter. Please understand that areas has been the biggest success so far in the last 18 months. We are almost about 65% sold. We have created history in terms of the first 9 weeks of sale as well as if you see the kind of collections that are going on, plus the price realization of dailies is now over INR 1 lakh a square foot and in our higher flows about touching 120, 125 square foot and selling. So there is a certain amount of momentum. Also because the Experience Center now is going to be unveiled sometime after Diwali. So what we have done is that I won't say it's a slowdown of sorts, but we have consciously kind of our presentations and all that were to that because the as the algorithm of Navia's states that the price increases now are going to be reasonably steep. So the entry level of dailies is now INR 100 crores plus. And therefore, it requires that kind of an attention and time. Also, the good thing, let me tell you, is that we have interest from all over the country and outside for daily as now. Over almost over 25% to 30% of our business now is coming from rest of India and outside, which is NRI. As I speak, I'm in Kolkata for one of those important visits and meetings. So there is a considerable amount of interest for dailies all across, and I can assure you that. So that's where we are. But there is a process to Dahlias. It can't be sold like any other say, even a 500,000 or 600,000 kind of a product. It requires a reasonable amount of time and attention.

So completely understand, Aakash, completely understand, but you guys have been doing a phenomenal job of it. So the expectation was similar. But should one assume that till the time experience center opens up the sales momentum should be a tad lower than what you've delivered in the past?

Well, I'll tell you what, it's about -- as I said, it's about per unit realization now. The prices of Dahlias are going to be -- the lower floors are INR 100 crores, and it goes up to almost about INR 160 crores, INR 170-odd crores right now. So that is what the price points are. And I think the people are getting used to that also. We have recorded some more sales this quarter, but obviously, I'd like to hold them on until I finish the paperwork. You will hear some very, very exciting news very soon. some very new and good benchmarks being said. But you'll hear about that. So just give me a little more time.

Understood. All the best for that. On the cost side, we are seeing a tad slowdown on a Q-on-Q basis for construction cost. But on the land acquisition side, things have picked up. How should one read that?

So Puneet, I think our cost from a construction perspective continues to be very, very stable and strong. Our average cost versus last year has definitely increased and our momentum and trajectory remains very strong. On the land, as we have always maintained that as and when we come out with reasonable parcels, which are of interest, we will definitely evaluate. And we have -- we are in discussions in -- from that perspective, yes, we have made some advances on lands in the previous quarter, where we have got into some kind of an agreement with them, which is going to fructify over the next 3 or 4 quarters.

You spent about INR 545 crores in the last 2 quarters. Anything you can call out on the quantum, quality of this plant acquisition?

So Puneet, I mean on [indiscernible] from, of course, contiguous land parcels, which are -- which could be an acre here, an acre there. we are pursuing a couple of slightly more strategic parcels within Gurgaon. And I think some of the advances have been towards that. And there was also a INR 80-odd crores, which was a deposit for a certain auction in the NCR region, which hasn't rectified and the auction hasn't happened yet, but the 10% EMD of INR 50 crores was deposited. So that's also been counted in this INR 545 crores of land. I think as some of these land parcels trustify in the next 1 to 2 quarters, and we report about, hopefully you will see these translating into additional GAVs.

Understood. That's very helpful. And last thing, [indiscernible] the Goa side, what is the leasing status?

So we are, at the moment, about 64% leased as we speak at 31st July. And the momentum is pretty strong. There are a number of brands who have not experienced the Goa market and, therefore, are taking a little longer to come. But we are quite hopeful that we will cross 85%, 90% using in the next 6 to 8 weeks. And the anchor fit-out should start later part of this month. .

And what are the rentals you are seeing?

The rentals, I dare say, are fairly healthy. It's the rentals are very different from cinema anchors from retail and F&B. These are the 4 and PC. 5 categories have different rentals. But if you take the mall as a whole, which is 705,000 square feet. On a super area, we should earn a rental of about INR 170 crores to INR 175 crores.

Next question is from the line of Abhinav Sinha from Jefferies.

Good to see the steady cash generation. Khattar, first question for you on the CAM charges, have you seen any impact of the recent divisions, which have happened on the minimum wages? And is there some pushback from the tenants on that?

Yes, there has been a marginal impact on that. I would tend to think it's about 2% to 2.5% of CAM cost, which has gone up. There has been no pushback from the Tenet because this is a national law and they themselves are facing these issues. And they realize that this -- what is there and our transparent system in which we charge it, I don't think we are having any issues at all. To remind you, we are probably among the few companies who get the CAM charges audited annually and share it with our tenant partners and either give a refund or take the extra depending on what the audited certificates says. So it's really a pass-through that we have.

Okay. And sir, you mentioned on some improvement in the leasing activity that you're now seeing. So this is the GCC clients or some other sort of demand that we're seeing now?

Yes. So this is basically the GCC and other multinational companies who probably were waiting for some signs of the Iran U.S. war to sort of give some indications and then start making their decisions. This is where we are seeing the PNB. Local Indian companies and normal ongoing expansion of the existing tenants have continued during this period. But the big boys who come were, say, 250,000 plus 300,000 plus are the ones which have now started moving.

Sir, just a question on the launch activity that we can expect. So on Hamilton to, have you sort of identified the product that we are going ahead with -- and also if you can update us on the status of Arbour 2?

Okay. So first, [indiscernible], as you know, is a retirement see scheme, which is of -- that we are going to be launching soon. This is in process, not as soon as we get the data, we will make those announcements accordingly. And that is something that we're looking forward to most immediately. The other one that you mentioned is still on the drawing board. I'm happy to let you know that there is a reasonable amount of excitement in the market for the same. But I'd like to leave it there. And as and when we finalize the product. We'll definitely come back to you all and talk about it. As of now, both have a good level of interest going.

But just to read, this is in line for the second half of the year, right?

Yes.

Next question is from the line of Akash Gupta from Nomura.

Congrats on a steady set of numbers. So my first question is on our land parcel on both the DLF and DCCDL side. I think some of your peers are expanding very rapidly into the data center side of the business. Just wanted to understand, is there any thought process where we are seriously evaluating data centers so that we can monetize our land parcels a little faster. That's my first question.

I'll take that question, Akash, the data center business is a business of 3 different components which come together. One is real estate. The second is par and the third is technology of the racks and how you efficiently store the data. Now as DLF, we have decided to focus only in the business of real estate. And we are constructing data centers for the companies as real estate developers, but not getting into the business of buying the technology and running the data centers ourselves and we don't intend to do so.

Sir, my second question is, what is the status of our Goa project? And are we still on track for the INR 200 billion guidance in the event that the Goa project doesn't come through in FY '27?

Okay. So the Goa Mall project is definitely onstream, as Sriram pointed out to you. I think your question is obviously on the Goa residential project. So yes, I mean the Goa residential project, as you know, is involved in some sort of PIL form of litigation, which is not uncommon in that part of the country. But in the morning only Akash and I did a [indiscernible] with each other. And I think we are on track to hopefully meet the plan that we had laid out at the beginning of the year. And I think that the 20 million number should ballpark still be on track.

I'll just come in here, Akash, see, we've got all our approvals for Goa, as Mr. Tyagi mentioned about the PII, we -- as a company, I think we choose to be on the side of caution more than anything else and nothing stops us from launching. But I think that is something before we create third-party interest and all that. We need it to be very clear as to what parts we're going to be taking go itself, as you all know, when it started, it's created a huge excitement in the market. In fact, everybody else has kind of benefited with the potential prices that DLF was supposed to come in with and whereas we choose to be first, absolutely clear with our approvals and wherever this PI is going before we actually accept the customers' payment. I think that's a goal that this company has taken -- it's always a customer-first approach.