On Monday, JPMorgan maintained its Overweight rating and INR1,000.00 price target for DLF Ltd. (DLFU:IN) stock, despite a muted second quarter in sales due to approval delays. The firm highlighted that, while sales for the quarter stood at Rs 6.9 billion, the full-year guidance remains unchanged. This is supported by a strong first quarter that led to a 66% year-over-year increase in first-half presales and a 43% year-over-year rise in free cash flow for the same period.
The second half of the year is expected to see the launch of "Dahlias," a luxury project that is anticipated to receive a good market response. JPMorgan notes that the high gross margins from this project could lead to a structural increase in DLF's medium-term margins. The analyst suggests that the demand for "Dahlias" is likely to be strong, given its super luxury status and specifications that are expected to surpass those of "Camellias," another of DLF's luxury offerings.
DLF's financial position remains robust, with the company continuing to generate free cash flow. The collection velocity has not yet fully caught up with sales, indicating potential for further improvement in free cash flow. The firm plans to use the cash for increasing payouts, building out strategic opportunities, or reducing gross debt.
The analyst also pointed out the strength of DLF's annuity business, which is expected to see significant rent growth, almost tripling over the next three years due to the commissioning of new projects at the parent level. DLF is seen as a beneficiary of a turnaround in the luxury residential cycle, where the demand momentum is currently stronger.
In conclusion, JPMorgan's reiteration of the Overweight rating on DLF reflects the company's solid first-half performance, the expected success of its upcoming luxury project "Dahlias," and its strong cash flow position, which provides multiple avenues for financial optimization.
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