Ride to All-Time-High is ON?
Ride to All-Time-High is ON?
Discussing why DLF has potential to reach its 2007 levels in 2024
Readers familiar with this newsletter are aware of my bullish stance on DLF since the end of 2022. This sentiment was first expressed in our initial coverage blog titled ‘Why investing in DLF made sense to us?’. The initial weightage was modest, but by the middle of 2023, I realized that the game was more significant than I had anticipated. The luxury real estate market was heating up significantly, even in the face of rising interest rates and DLF is beating all expectations. An illustrative example is as follows:
On October 24, 2022, JP Morgan released their pre-sales forecast for DLF for FY23 and FY24, projecting Rs 88 billion and Rs 99 billion, respectively. These figures aligned closely with market consensus, indicating substantial growth compared to previous years. Generally you don’t go wrong by big margins in such short term estimates, but what turned-out is shocking!
Fast forward to today, their actual number stand as follows:
Actually Pre-sales figures of DLF-
FY23: Rs 150 Bn
FY24 (till December, 2023): ~Rs 130 Bn+ [a mega launch due in Q4 of FY24]
FY25: Guidance awaited
(if you are confused what ‘Pre-sales’ are, take it as the orderbook that DLF has which would convert into ‘actual sales’ as they execute these orders in future years)
DLF is not only surpassing analyst expectations but also outperforming its own management's guidance, which was set at Rs 80 billion for FY23 and Rs 120-130 billion for FY24. This indicates a surging demand for premium/luxury real estate within our country, particularly in Gurugram. Notably, flats at DLF's ultra-luxury project, Camellias, Gurugram, saw a doubling of their per sq feet rates in the last 2.5 years (from Rs 37,500 in May 2021 to Rs 75,000+ in October 2023). Furthermore, Camellias witnessed two transactions of Rs 100 crore per flat in the second half of 2023, setting a record.
This justifies the rally witnessed in DLF in 2023, with the share posting a remarkable 91% increase in just this year. However, it still has a significant distance to cover to reach its all-time high of ~Rs 1,200, which I believe is achievable soon unless new risks emerge.
How is Gurugram Real Estate Market shaping up?
To comprehend DLF more comprehensively, the Gurugram property market holds the key. Over 50% of DLF's total land bank in India is situated in Gurugram, acquired several decades ago. The market in Gurugram is currently experiencing a significant boom, drawing in investments worth thousands of crores from new players. We recently published another newsletter titled “Gurugram: Hottest Real Estate Market,” discussing the entry of multiple real estate companies into the Gurugram market.
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In the latter half of December, DLF launched DLF Privana South in Sector 77 of Gurugram, proving to be one of the biggest hits of 2023, akin to the success of DLF Arbour that came in early parts of 2023. I meticulously tracked all the details of this project, and below are some key insights.
DLF Privana is part of a new township covering approximately 250 acres that DLF plans to develop using its extensive land bank within Gurugram. This location is strategically positioned in the decently placed sectors of Gurugram, particularly in and around sectors 76 and 77. The Phase 1 launch, named DLF Privana South, encompasses over 25 acres of land with approximately 90% green space. They successfully sold more than 1,100 flats, predominantly 4BHKs with an area of 3,500 sq feet each, at a rate exceeding Rs 18,000 per sq feet. This rate stood significantly higher than the prevailing market rate in that area, which was around Rs 13,000 per sq feet. Clear example of brand commanding premium.
The response to this project was phenomenal. A glimpse of the launch event, held on December 21, 2023, is captured in the picture below. The event was attended by several hundred affluent channel partners of DLF, high-net-worth individuals, investors, and families, each presenting a cheque of Rs 50 lakh while submitting their Expression of Interest (EOI) for project allocation. The demand exceeded expectations, and many left the event empty-handed. I personally believe that numerous channel partners represented their NRI clients from the USA, UAE, and other nations who are interested in acquiring property in India. On average, 20-25% of DLF's sales are attributed to NRIs and foreign individuals, either planning to settle in India later or for investment purposes.
Coming up next, DLF has planned another ultra-luxury project with a higher ticket size scheduled for March-April 2024, once again within Gurugram, following the successful model of The Camellias.
Biggest Office Space Deal of India Happens at DLF Downtown, Chennai!
The year 2023 concluded on a high note, not only in the residential sector but also in the commercial (office) space. The most significant office space deal in India transpired in Chennai, where Bank of America leased over 11 lakh sq feet at the upcoming DLF Downtown in the city. The deal was struck at a rate exceeding Rs 100 per sq feet, notable considering that office spaces in Chennai are generally not as expensive. The DLF brand commands a premium wherever it establishes its presence.
I've personally observed the construction of several upcoming commercial (office) projects in Gurugram, including DLF Atrium (a $3 billion project, a joint venture with DLF holding a 67% stake) and DLF Downtown Phase 2.
Go, Goa, House?
I'm certain that many of the newsletter readers celebrated their New Year weekend in Goa, enjoying parties along the sea. After all, Goa consistently ranks as the most visited place for celebrating New Year's Eve, according to various online travel aggregators. Goa remains the top choice for many in the Gen Z demographic seeking a place to chill and relax. And guess what? DLF has got you covered there too!
Indeed, DLF is gearing up to launch its first residential project in Goa in 2024 (tentative), expected to attract a significant crowd from across India and around the world. While owning property in Goa was traditionally challenging, viewed primarily as an investment in tourism, things are changing. Many individuals are actively exploring the idea of relocating to cleaner and calmer environments like Goa, especially with the widespread adoption of work-from-home policies by employers. If you're interested in understanding the Goa property market better, here's a video I found during my research:
In addition to its residential project, DLF is actively engaged in the construction of a luxury mall in Goa, named DLF Avenue (previously named Patto Plaza). The construction is progressing at a rapid pace, as discussed in their investor conference calls that I have been consistently attending.
Looking ahead to FY25, DLF has ambitious plans for its launch pipeline, targeting key markets in Chennai and Mumbai. This strategic move marks a significant step towards diversification for the company.
Closing Remarks
I believe the rally witnessed in DLF throughout 2023 is well justified, given the exceptional margin by which the company has surpassed all analyst expectations. This remarkable performance is attributed to the rising demand for luxury properties in India. I anticipate that this trend of outperformance will likely continue into 2024. Despite the impressive 90%+ rally in 2023, I feel that the changing dynamics of the Gurugram property market are yet to be fully reflected in the share price.
As we embark on 2024, there is a potential for the stock price to reach its all-time high of ~Rs 1,200, driven by upcoming triggers, launches, office leasing deals, and continued dominance in national headlines. Consequently, I have decided not to sell a single share and to hold onto my investment.
It's essential to note that this investment hypothesis is based on the risks known as of today. However, any emergence of new risks or adverse outcomes, especially on the political and geopolitical front, such as upcoming elections in India and key nations like Taiwan and the USA, would necessitate a reevaluation of the investment hypothesis.
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Leaving you with few of our previous works on DLF:
Disclaimers-
I am not a SEBI registered advisor; personal investment/interest in the shares exists for the company mentioned above; this isn’t investment advice but my personal thought process; DYOR (do your own research) is recommended; Investing & trading are subject to market risk; the Decision maker is responsible for any outcome.
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