Motilal Oswal Financial Services (MOFSL) has issued a "Buy" recommendation for DLF, one of India’s leading real estate developers, with a target price of Rs 954. This implies a substantial 35% upside potential from the current market price of Rs 704. The bullish call is based on DLF’s stellar pre-sales performance, robust project pipeline, and significant operational improvements, particularly in the super-luxury residential segment, highlighted by its flagship project, The Dahlias.

Q3FY25 Performance: A Strong Quarter for DLF

Pre-Sales:
DLF reported pre-sales of Rs 121 billion in Q3FY25, marking a 34% year-on-year (YoY) growth and exceeding its full-year guidance. This performance was primarily driven by The Dahlias, which accounted for 98% of the quarter’s pre-sales, with Rs 118 billion generated from 173 units sold at an average realization of Rs 0.7 billion per unit.

Revenue and Profitability:

Consolidated revenue stood at Rs 15.3 billion, flat YoY and down 23% quarter-on-quarter (QoQ), missing estimates by 10%.
EBITDA dipped by 22% YoY to Rs 4 billion, with margins improving to 26%, up 500 basis points above estimates.
Adjusted PAT (excluding deferred tax liabilities) grew by 61% YoY to Rs 10.6 billion.
Cash Flow and Debt Position:
Operating cash flow surged by 67% YoY to Rs 19 billion, while the net cash position improved to Rs 45 billion, up from Rs 28 billion in Q2FY25.

Key Drivers of Growth

1. Success of "The Dahlias":
This super-luxury project has set a new benchmark in the real estate market with its premium offerings, including expansive apartments and state-of-the-art amenities. The total revenue potential for the project stands at Rs 350 billion, of which Rs 230 billion worth of inventory is still unsold.

2. Robust Pipeline:
DLF’s project pipeline for FY25 increased to Rs 441 billion, Rs 146 billion higher than its initial guidance. Launches beyond FY25 are projected to have a potential value of Rs 704 billion, encompassing major projects in Mumbai and Goa.

3. Collection Efficiency:
Collections improved significantly by 23% YoY, reflecting strong execution and timely deliveries.

Segment-Wise Performance

Residential Business:

Sales momentum in the residential segment was primarily driven by high-value properties like The Dahlias.
Projects in Goa and Mumbai are expected to further bolster the segment's growth in FY26.
Commercial Business (DCCDL):

Rental income grew by 9% YoY, with occupancy levels at 98% for retail properties and 87% for SEZ spaces.
The commercial portfolio’s debt-to-GAV ratio declined by 1% to 22%, reflecting improved financial health.
Retail and Leasing Business:

The retail segment continues to perform well, with nearly full occupancy in operational properties.
The Downtown Gurugram project has seen significant leasing activity, with new blocks under construction expected to be completed in Q4FY25.

Key Financial Metrics

Valuation and Target Price

Motilal Oswal has adopted a Sum-of-the-Parts (SOTP) valuation approach to derive a fair value for DLF.

The operational portfolio is valued using a cap rate of 8% for office assets and 6.5% for retail properties.
The Gross Asset Value (GAV) of DLF’s portfolio is estimated at Rs 2,439 billion. After accounting for net debt of Rs 78 billion, the Net Asset Value (NAV) per share is Rs 954, translating to a 35% upside.

Technical Analysis: Key Support and Resistance Levels

Support Levels:

Rs 680
Rs 700
Resistance Levels:

Rs 750
Rs 954
Actionable Insight:
Investors may consider accumulating DLF at current levels with a target of Rs 954. A breakout above Rs 750 could signal additional upside potential.

Risks to Consider

1. Regulatory Delays:
Delays in approvals for major projects in Mumbai and Goa could impact launch timelines and revenue recognition.

2. Rising Costs:
Inflation in construction materials could exert pressure on margins, particularly for premium projects.

3. Currency Volatility:
International projects and partnerships may face headwinds due to fluctuating currency exchange rates.

Conclusion

DLF’s Q3FY25 results reaffirm its leadership in India’s real estate market, driven by strong pre-sales, innovative project launches, and a healthy financial position. With a diversified project pipeline and consistent operational execution, the company is well-positioned to capitalize on growing demand for premium residential and commercial properties. Motilal Oswal’s "Buy" call with a target price of Rs 954 reflects the significant value potential for medium- to long-term investors.