DLF: Nomura reiterates 'Buy', maintains target price of Rs 740 after Q2 pre-sales beat estimates

Residential collections stood at Rs 26 billion, up 3% year-on-year. The brokerage said DLF was on track to meet its FY27 pre-sales target of Rs 200 billion. Its estimates factor in key launches such as Westpark in Mumbai, with a gross development value (GDV) of around Rs 30 billion, in the third quarter of FY27, and Hamilton Court in Golf Course, NCR, with a GDV of around Rs 80 billion, in the fourth quarter.

Nomura expects free cash flow (FCF) generation of Rs 70-80 billion annually. "Given the company already has a materially large land bank, we believe cash accumulation from FY28F onwards due to project completions should allow the company to materially increase shareholder returns," it said. DLF's second-quarter FY27 revenue, EBITDA and profit after tax came in at Rs 12.6 billion, Rs 0.2 billion and Rs 13 billion, respectively, down 23% and 92% year-on-year for revenue and EBITDA, while PAT rose 10%.

Revenue and EBITDA were 36% and 94% below consensus expectations, while PAT was 30% above consensus. Nomura expects a stronger revenue recognition cycle from the second quarter of FY28. "Overall, the company has pending revenue recognition of INR601bn with blended gross margin of INR287bn (48% gross margin vs ~40% reported) when it recognizes sales from its entire launched inventory over the next 4-5 years," it said.

The brokerage expects DLF's annuity income to grow at a 12-13% compound annual growth rate over FY26-29, with gross rentals of Rs 64 billion expected to surpass Rs 100 billion by FY30. DCCDL rentals grew 9% year-on-year in the second quarter. Nomura's Buy rating is based on DLF's robust annual FCF generation of Rs 70-80 billion, potential growth in annuity income and execution capabilities in luxury and super-luxury projects. The brokerage noted that the stock trades at net asset value (NAV), against its estimate of a 15% premium to NAV.