DLF Limited (DLF) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to DLF Limited Q4 FY '24 Earnings Conference Call. We have with us today on the call, Mr. Ashok Tyagi, Managing Director and CFO, DLF Limited; Mr. Sriram Khattar, Vice Chairman and Managing Director, Rental Business; Mr. Aakash Ohri, Joint Managing Director and Chief Business Officer. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ashok Tyagi. Thank you, and over to you, sir.

Okay. Thank you. Good afternoon, everyone. Welcome to DLF Limited's analyst call for the quarter and year ended March 31, 2024. As you may have seen from our analyst presentation that was circulated last evening, this has been one more quarter of reasonably solid and strong growth. Our presales for the last year have again been in the vicinity of INR 15,000 crores, thus maintaining now 2 back-to-back years of INR 14,500 crore to INR 15,000 crores sales level. Our PAT for the quarter was INR 900 crores. And for the full year, the consolidated PAT is INR 2,700 crores, which again is a very strong number. And I think the most heartening is that the free operating cash flow for the year is now running at about INR 4,300 crores for the last fiscal year. And we are now very solidly in the positive cash territory and ended the last 31st March with a positive -- with a net positive cash balance of INR 1,500 crores plus, which hopefully should keep on growing. I mean, we are clearly looking at the existing markets grow in terms of the depth that they have, which has surprised us extremely positively. The launches that Aakash has led have been successful almost now without fail. And I think basis the strength of what we have achieved so far, we are clearly looking at a strong growth in the next fiscal and hopefully targeting a sales guidance of INR 17,000 crores for fiscal '24-'25. With the development business, the rental business has continued to have an extremely solid year all through. The rental -- the total rentals for the last year had been INR 4,400 crores plus, which are stated to grow significantly this year. Our growth pipeline in terms of CapEx is very strong with the Downtown coming up in Gurgaon, the next phase of Downtown in Chennai, and our joint venture with Hines, the Atrium Place. All buildings are now in an advanced state of completion. Our debt-to-GAV is now down to 0.23, which is almost comparable to the industry's best, and our debt-to-NOI is also now almost at a 4% and slated to be a sub-4% level through the year. So all in all, both the residential and the commercial businesses have done extremely well. And frankly, without taking too much of your time, I'll now open it up for questions.

[Operator Instructions] The first question is from the line of Puneet Gulati from HSBC.

Congratulations on good collection run rate. My first question is actually with respect to that only. Of the INR 2,100 crore of collection this quarter, how much of it is attributable to Chennai? And how much do you think is a sustainable run rate on a quarterly basis?

Okay. So the Chennai, I mean, the total transaction value of China was about INR 725 crores, INR 730-odd crores. And all of that got collected in this quarter. Total through the year, our collections net of the Chennai transaction were about INR 7,600-odd crores. It was INR 8,300 crores including Chennai. So about INR 7,600 crores, excluding Chennai, which runs at about INR 1,900-odd crores a quarter. I mean obviously, there will be spikes across quarters. And we are frankly targeting for this number to grow by at least 15-odd percent on an ongoing basis for next year.

Just 15% despite a huge sales launch pipeline?

[Foreign Language] the launch pipeline, this is the first -- so a, if you look at -- see, the Arbour had been launched in the previous year and Arbour collections came in now. I mean, the bulk of the first 35% Arbour collections have now come in. The next -- the subsequent collections will now come with slated construction milestones. Privana South and Privana West will have strong collections in the next fiscal. But please also appreciate the large chunk of our collections engines for the last 2 years was driven by the completed Camellias, which were all full at a 9-month time line. And really, as the Camellias existing inventory is now winding down, that particular support will no longer be available. So now really, it's the -- I mean, in some sense, this year, will be the first year where the new products launched in the last couple of years, will be driving the entire collections mechanism.

Understood. That's helpful. My second question is with respect to the recent land acquisition in Gurugram, which is the IREO project, and that seems to have increased your land bank from 81 million to 88 million square feet. How should one think about it? Why was there a need to buy it in this location and not get into some of the newer markets or allocate capital towards -- more towards Mumbai, for example? How should we think about the balance remaining land bank because you have a very, very large land bank in Gurugram already?

So, a, like Mumbai itself is split across 7 or 8 distinct submarkets. The fact is today, Gurugram is no longer a single market. There are at least 3 or 4 distinct submarkets or micro markets in Gurugram, of which the Golf Course road is clearly one. The erstwhile DLF city was another. The new Gurgaon was third. I mean, frankly, Aakash has almost created the entire Privana market as a premium market to the classical new Gurgaon market now. And the Golf Course Extension road was always a strong market where, frankly, we did not have adequate land presence. We had only 1 project, which was Arbour, which had been launched in December -- sorry, March of 2023, and that was such a great success, which frankly led us to believe that there could potentially -- there was potentially a window of opportunity for us to get into if we could get the right land bank. And this was a land bank which came to us through the lenders and it was, as you know, it was a takeover of a bank debt, which we did, along with the security, which came with it and then, obviously, we did a SARFAESI, et cetera. So I think really, this -- I mean this land parcel today will cost us less than INR 2,500 a square foot on saleable area for almost 7.5 million square feet. And we believe that there's a -- I mean, frankly, this is an extremely profitable venture. I mean, we have already put a GAV of about INR 20,000 crores on this right now. And honestly, by a time all our approvals are done across the next year, I think, hopefully, the price point should be even stronger. So this should actually prove to be a distinctly profitable product, which is addressing a micro market where we were not present.

Understood. That's very, very helpful. And lastly, if you can give in terms of time lines of completion for the Hines project? And what is the plan post then in terms of DCCDL acquiring that, and the Downtown project?

Downtown, you want to address, Sriram?

So let me start with the Hines project. It's called the Atrium Place. It is a 2.9 million development at this stage, spread in 4 towers. The towers start getting delivered by April, May, next year and go on until end of next year, beginning of '26. So the first 3 towers are about 600,000 square feet each and the large tower is about 1 million square feet. As far as Downtown is concerned, it's, as you know, a very large multi-use development. Downtown 2 and 3 of about 1.6 million, 1.7 million are already completed and running and rent-yielding. Downtown 4 is expected to be delivered end of this year, early next year with rental starting in Q1 of the next year. That's about 2.1 million. The development of the Phase 2, as we call it, which is the Mall of India Gurgaon and about 4.6 million square feet of offices has already commenced. We have started the raft and ground preparation, et cetera, et cetera. And the designs have been finalized. The drawings have been put for municipal approvals, and we are in the process of shortlisting the contractors to do this. This has been quite an intensive planning exercise because it is an integrated development of in excess of 7 million, which has a reasonably strong component of infrastructure development around the 36-acre side and on the service lanes and lands around it. There is a small phase called -- so-called Phase 3, which is about 1 million square feet, which we will do after the complete Phase 2 of 7.5 million.

Right. So Phase 2, you're saying for Downtown Gurugram should get completed by end of this year. And for Chennai Phase 1, when should that get completed as well?

So in Chennai, Downtown 1 and 2, the occupation certificate has come. As we seek, the tenants are doing their fit-outs, they are in an advanced stage, and most of the rental should start coming in from next month onwards. As far as the third tower is concerned, which was with Standard Chartered Bank, that is going to be completed in July, August, and that's about the time Standard Chartered will take it on -- for their fit-outs. And we expect the rental of that to start in the month of March '25.

That's great. And just lastly, if you can tell us what was the exit rental for '24 and your expectation of exit rental for '25. That's all.

The exit rental of '24 is INR 5,000 crores to INR 5,100 crores and the exit rental for the next year is INR 5,900 crores to INR 6,000 crores. There is a major jump that will come up in rentals because of the completion of the certain towers in the 2 Downtowns and, therefore, the rentals will take a big bump up in FY '26. And these are on the books of DCCDL. These do not include the rentals that will kick in for the Hines joint venture on one side and the 2 shopping plazas and the malls totaling to about 1.2 million being developed in the books of DLF, which are in the midtown in Phase 5 Gurgaon and in Goa.

The next question comes from the line of Parvez Qazi from Nuvama Group. As there is no response, may I request that we move to the next participant? The next question is from the line of Kunal Lakhan from CLSA.

Just on the guidance side, right, I mean, of INR 17,000 crores for next year. I mean if you exclude the Privana sales -- Privana West sales already done, we're talking about an incremental INR 11,500 crores coming from, say, the residual new launches worth of INR 30,000 crores odd. So I mean, that's like almost like a -- about 35% to 40% of sales from the new launches that you are expecting. Considering most of the projects that we have launched so far in the last couple of years, we've -- you have sold out those projects. So this 40% of sales from -- or like the incremental launches getting 40% sold for the rest of the year. Isn't that a little conservative?

So Kunal, I think, your question is, I think, if I may say so, making the error of averaging. So let's analyze the launches we are doing and then hand I'll over to Aakash. We have Lux 5, which in some sense is like the biggest launch that will happen, which is -- and which will be a product comparable or maybe better than the Camellias. Then we'll have the next phase of Privana coming in the later part of the year. We'll have the villa launch in Goa and we'll have the Mumbai launch. So clearly, I think the Privana, Goa and Mumbai launches should have very strong penetration of the total launch. Lux 5, being the kind of product that it will be, would obviously be a more strategic sale. And really, Aakash will have you over to how you plan to do that really.

So I was just going to say that also. So Lux 5 is a super luxury product, as you know. And you have seen and I'm not saying that it's going to take the same time as Camellias did because Camellias was the first of its kind in that uber-luxury though we've done Aralias and Magnolias, but Camellias was a completely game changer. So we did what we had to do. And at that point in time, regulations, markets, a lot of things, there were tremendous amount of headwinds. Having built on the Camellias story now and which is now more plausible and where most of the people now have accepted and then not only accepted, but endorsed this is now the Lux 5. So this is not a product that can be advertised to sell. And this is not something that you will have because the price points are going to be reasonably high here per unit wise. And therefore, it will take that much time to go through. So yes, the first year will have a certain amount of sales. And then every year with an incremental value, it will continue to go up and sell. The networks and the processes that we have set up over the years for Camellias are going to be used and that's how we are going to be going through it. Our teams on ground now are in place for all the launches. And yes, I mean, we are not going to stop at INR 17,000 crores, if that was your question. But you're right, over the past 3 years, you've seen a certain amount of sales velocity and especially at launches because we put in a lot of effort in launches. And therefore, it will go on as we have mentioned, but we are not going to stop at INR 17,000 crores. So should the traction for a super-luxury product get better, we know -- again, I go back to the point of it being the price points being at a certain value and above. And therefore, should there be more traction, we are not going to hold back.

Yes, but obviously, the Lux 5 being the kind of product that it is, we'll have a certain price trajectory that we have in mind and a slight customer profile that we have in mind. And obviously, within those 2, I mean, if the total sales volume is higher than INR 17,000 crores, you will be the happiest.

Sure, sure. A follow-up to this is like what are the time lines in terms of which quarters we plan to launch, say, Privana next phase, Goa, Mumbai and then Lux 5?

So Q2, you will see a Goa and maybe some friends and family of Lux 5. I mean, Q2 is going to be that. Q3 is going to be the main Lux 5 launch. Q4 is going to be Mumbai. That's how we planned it. So Goa will be Q2 and plus some of the residual sales and all that. That's how we've structured it.

On Mumbai, Kunal, really, we have done now done all the recce and the slum rehab, et cetera. So we believe that by end of September, we should have the complete site, not only of the stuff that we are launching, but the 2 million square feet site completely cleared off, barricaded, access done, all approvals done. And after that, frankly, it's a question of really when does Aakash and the local execution team sort of decide to get to the market. But given the fact that Q3, we may want to focus almost exclusively on the Lux 5 launch, Mumbai could either be towards the end of Q3 or early Q4.

Understood. My second question was on, if I look at the premium segment launches for the next year and, in fact, next few years, it's practically negligible. So any conscious strategy there to focus more on luxury or take a back seat on the premium side?

So again, one is that this time, we have tried to be slightly mathematical that we have said anything which is more than INR 18,000, INR 19,000 square foot we have classified as luxury. I mean because in our older slides, Privana used to be classified as premium. But the fact is if Aakash is getting the price points of INR 19,000 plus now, I mean, really it is luxury like the City Floors. So part of that is that, but obviously, some of the launches that may not happen immediately in the future, but be it Tri-city or be it new Gurgaon, would eventually be in the premium thing of the say, the INR 10,000 to INR 15,000 a square foot price points. So it's not a conscious choice, it's just that right now we are focusing on this segment. Aakash?

Yes. Also, we are focusing on the geographies that we spoke about, and they come with these price points. So there is no conscious strategy to push back premium. It's just that in the pipeline that you refer for '25, are these products that are lined up, which are at a certain price and above. That's all. There is -- honestly, don't read anything beyond this.

Understood. And just a last bookkeeping question. In Privana West, how much would have been sales from NRIs?

About 27% has been NRI sales in Privana West. We've been seeing a steady growth. As you know, we started mining the NRI base from before Arbour time. And we have a certain process to do that. NRIs are one of the most strongest allies as far as DLF is concerned, and we have not -- happy to tell you, we've not invented anything new. DLF, since its early inception days, has had a good NRI participation. It was only in after the 2010 when the markets collapsed and there were delivery issues and all that, that the NRIs faded away for other projects. And therefore, we were collateral damage also. But if you go historically and let me make this very clear to everybody today that the NRIs are not only a very strong support and have been over the last 3 decades for DLF, but also as far as payment structures are concerned, NRIs have always known to be holding properties. They are not fly-by-the-night investors. They are not investors who just get into for smaller returns. Also, it doesn't make financial sense for them to do that. So these are people who are -- some of them are ones who have visibility of coming back to India in 5 years. Most of them rent these out. Some in super luxury have kept them for their regular India travel. But I think this whole Invest in India, and especially Invest in DLF with the NRI system has really worked, and we are continuing to make sure that we are mining it well.

[Operator Instructions] The next question is from the line of Pritesh Sheth from Motilal Oswal.

Firstly, just on Privana West, congrats on second -- successful launch of second phase. Just wanted to understand how different the demand characteristic was versus the first phase, even we had a little higher pricing. So just your point on that.

So Privana West, the qualitative nature of the demand this time has been extremely encouraging. Again, as I say, there is a reasonably big and good demand from the corporates, entrepreneurs, NRIs and doctors, lawyers and all. So the demand has been good also because please understand the positioning of Privana, what makes a project actually take is, you've got the product, which is very superior. I can now give you a comparison of what this product is going to be. It is the new crest. So for those of you who have seen and heard about the Crest, Crest is the benchmark for Gurgaon today in the luxury category. And not only in India and not only in Gurgaon, I can safely tell you that Crest is the benchmark for a lot of people who want to emulate it in their geographies. So happy to today announce to you that this is going to be in the same genre. That is the product. Then, of course, the connectivity is super for Privana. So whether it's the Mumbai Expressway, which is 5 minutes away, which is -- whether it is the Dwarka Expressway, which will take you to the airport in about 25 to 30 minutes, whether it is the Jaipur Expressway, you have -- the connections to Privana are probably the best Gurgaon can have. Then you are near a 10,000-acre hectare of a green lung, which is now becoming the most important priority for a lot of people who want to breathe the freshest air in the morning. So all this plus the DLF lifestyle promise plus the ecosystems that we build has added to this particular demand, and it's a very -- I'd be more than happy to share the kind of product mix that we -- I mean, the customer mix that we've got today. It's very encouraging to see the kind of people who come in. Also, the youngsters, as I say, I'm repeating it for the last 1 year, I am seeing a very good shift and that's where the base of real estate is increasing. I am seeing the 30 and above investing in our properties and across the board. So I think that's where the Privana West story is. And the entire Privana...

Yes. And I mean, did the number of checks that you got were mostly higher than the number of units and hence, you have pulled forward the next phase to this year because earlier, we didn't see that Privana launch happening in this year? And are you looking at some higher, a little premium product in Privana now in the third phase because if I do some back-of-the-envelope calculation, we are getting the average realization of somewhere around INR 24,000, INR 25,000. Is my calculation right? Or...

No. So Privana, the next phase of -- again, let me first tell you that it was always part of -- I don't think we've recalled it. It was always supposed to be towards the end and all that, that's something which is part of the whole launch plan. I know it's not about -- it's not that much. I hope I can say [Foreign Language]. I hope it becomes INR 24,000, INR 25,000 soon. It will. But right now, I think I don't want to speculate there. But definitely, it will be upwards of the INR 20,000, at least 10%, 15% more than the INR 20,000 mark for sure. But again, I reiterate, please understand where the demand is coming from. So what Crest was to DLF 5 is what the Privana is starting to become for the new Gurgaon business. And why this is happening is also, if you see American Express recently launched their biggest campus, which is again minutes away from where the Privana is. Air India set up the largest hub there. So hopefully, other commercial investments are also going to be there. So Privana is starting to become the new DLF. I call it the DLF-6, but it is the natural progression for what it is because it's the contiguous -- it's over 100 acres and more of contiguous land that we have. So it's going to be one of the most prized possessions that people have. And again, I repeat that this is not just -- these are not just investors. Most of them, majority of them are people who are buying Privana for their end use. Also because of the product being very homogeneous in terms of the sizes, the quality of people and the mix is going to be what is actually attracting the people to invest in.

Sure. And just one last on Lux 5. How are you going to strategize the inventory that you are bringing to the market? Will it be purely like invitation-based, starting certain customers like we did for Camellias? And how much of the sales is baked in, in the INR 17,000 crores guidance from Lux 5 or you wouldn't look it that way?

Yes. So Lux 5 will be -- you're right, Lux 5 will be an invitational product as was Camellias. I don't think there we'd like to dilute that at all. So Lux 5 will have the same processes as Camellias was and that is going to be by invitation, strictly by invitation. We will continue that whole process. We've got a very, very large network of people that we touch base all over the world, in India. I'm seeing the next demand of Camellias coming from Tier 2 cities, Kanpur, Calcutta, Bangalore, Ludhiana. These are the few sales that happened now. So people are wanting -- Bhubaneswar. People are wanting to now, if they have -- if they spend some time in Delhi, people are genuinely now wanting to invest in this lifestyle of DLF 5 and super luxury and Golf Links. And these are serviced, fully serviced apartments and all, so I see that demand coming from there. The networks of these people that we had presented to over the last 4, 5 years, we've got a very, very large base of people that we are going to be, again, reaching out to, which are already now with us, those databases. We don't need to go out. So that's how we're going to be approaching I think. Right now we've kept about INR 3,500 crores in the INR 17,500 crores to start with. But again, please don't read beyond this. This is as per plan, as per how much we can reach out and do. But like you said, should a good portion of that be taken, we are ready for that as well. But again, we are not ready to compromise on Lux 5 pricing at all.

Or the quality of customers.

Quality of customers is absolute priority. We've done that. We've shown it in the worst times. We've shown it at the time where everything was against us, yet we never compromised on any of our quality of customers. We will continue to do it with this little tailwind that we have.

The next question is from the line of Abhinav Sinha from Jefferies.

Firstly, on Privana, again. When are we expecting the next phase? Is this the fourth quarter of the year?

We are trying. Yes, please, we are trying to bring it around that time.

Okay. And what are the delivery time lines we have on Arbour and Privana now? Is it, I mean, 4 years, 5 years?

We have been saying -- I mean, as per our agreements are concerned, it is always 5. But again, we have set up very robust construction mechanisms and systems that if these things can be expedited, they will be. But these, they take that time.

Tyagi sir, just a question on the large cash and debt balance that we had at the end of the quarter. So this is temporary or are we expecting some large payout?

Okay. So 2 things. If you look at the total cash balance that we have, it's about INR 6,000 crores, of which INR 4,000 crores is escrowed in the RERA 70% accounts. So those can be used only for construction and approvals really and for little else. So practically, while we have a INR 6,000 crores cash balance, INR 4,000 crores is in the 70% RERA accounts, which is not accessible for general business purposes. Yes, the balance INR 2,000 crores, we believe, is maybe at least INR 750 crores to INR 1,000 crores higher than what we would like it to be. So I think we would want to eventually have that number stabilize around INR 1,000 crores. So I think that's a correction that you will see across the next 2 quarters. And hopefully, hence, that will also result while having now won the net debt war, the next focus is to win the gross debt war and also get the gross debt down to as near zero as possible. And for that, obviously, we can't control the RERA cash, but we can definitely control and be far more efficient in terms of the non-RERA cash. And the reason we obviously need to keep some non-RERA cash or at least non-RERA lines in terms of NCD lines, et cetera, is that when you have stuff like a land opportunity or something, then unfortunately, you can't use your bank borrowings, for it, et cetera, because all of them come into prohibited uses. So I mean, really about INR 1,000 crores, we believe, is a number that we should maintain, which is free unencumbered cash. But beyond that, really, we don't need to. So yes, we are slightly excess right now, which we will correct.

Okay. Sir, on RERA cash, can we use that to raise, say, debt elsewhere? Or does it work like that?

So honestly, Abhinav, that is in the very, very dark gray zone, and we have not been tempted to do that. I don't think -- I think -- so what we do is that we put that money in FD. So yes -- so while our debt raise is -- I mean, the gross debt is at about, say, 8.25%, 8.3%, the RERA FDs are fetching us about north of 7% in returns. So the negative arbitrage is about 100 to 125 basis points. But beyond FDs, we haven't really done anything more adventurous with the RERA cash and neither should we.

Okay. Sir, on DCCDL, and I think, last quarter, we were mentioning that we are initiating the next round of transfers of the assets from DLF. So on this, are we decided on Atrium? I mean, is it like a transfer mechanism or we are still looking to sell when it is on DLF balance sheet?

On the Atrium, I'll tell you, Atrium, as Sriram said, is about 18-odd months away from a complete completion and rent stabilization. Frankly, on Atrium specifically, it will depend on 2 things: a, the 33% shareholder there, which is Hines and its LPs, what are their exit plans? And b, obviously, what does Cyber City and its minority shareholder, GIC want? It's a great asset to be acquired. But frankly, I think, we will cross their bridge once we come to 18 to 24 months down the line. Sriram?

Yes, absolutely. I think the way to look at it is that Hines joint venture is 33% held by them, and it really depends on what they would like to do. But having said that, I do not foresee DLF being a seller of that asset. So either we will continue and they may want to give it to a third party on which, of course, we have our majority rights, et cetera. And we will cross that bridge when we come to it, which should be not less than 2 years from now.

Okay. And -- but does this mean that we are leasing it out now, right? We are not selling it.

No, no. We are going to lease it out. We are definitely not selling it. In fact, leasing has commenced in the last quarter. We have already leased out about 250,000 square feet. And during the course of this year, the momentum will be far higher than that.

At about same, 140, 150?

Slightly higher than that.

Slightly higher than that. Okay. Excellent. And sir, lastly, on your presentation mentions double-digit PAT growth, and I'm assuming this is for the next few years. But just in FY '25, which projects from top line perspective can contribute here?