DLF Limited - Rating outlook revised to 'Positive', Ratings Reaffirmed

CRISIL Ratings has revised its outlook on the long term bank facilities of DLF Limited (DLF) to 'Positive' from 'Stable' while reaffirming the rating at 'CRISIL AA-'; The rating on the short-term bank facilities has been reaffirmed at 'CRISIL A1+'.

The revision in outlook reflects further improvement in business risk profile of DLF driven by high sales booking, liquidation of finished inventory, healthy launch pipeline and steady receivables. Financial risk profile of DLF has also strengthened marked by significant reduction in debt levels and strong financial flexibility.

The company registered Rs. 1,453 crore of net sales booking (Rs. 2,040 crore including ONE Midtown JV) in the first quarter of fiscal 2023, driven by a healthy demand momentum, strong -7.6 msf launch pipeline, focus on short cycle projects and liquidation of unsold inventory. New product offerings are also being planned in certain key markets such as Chandigarh Tr-city, Chennai and Goa in addition to its core markets of Delhi and Gurugram which will support the business risk profile of the company. In fiscal 2022, DLF recorded net sales booking of Rs. 5,321 crore (Rs 7,273 crore including ONE Midtown JV), the highest in the past six fiscals, driven by sustained sales momentum and fundamental drivers like affordability and the desire to own a home. The company also exhibited a strong double digit pricing growth across the product offerings resulting in significant value enhancement.

Liquidation of inventory of Rs. 4,478 Cr (including finished inventory of Rs 3,470 crore) as on June'22 along with receipt of pending receivables of around Rs 4,627 crore (including Rs. 1,199 Cr from finished inventory) as on June'22 from sales that have already been made will provide further stability to the cash flow, support construction costs and maintain debt at reduced levels. The company has significantly reduced gross debt from Rs. 6,510 crore in fiscal 2021 to Rs. 3,900 crore in fiscal 2022 due to higher prepayment of debt on account of strong collections. Consequently the debt/total assets reduced to 0.18 time in fiscal 2022 from 0.28 time the preceding fiscal and is expected to fall further in current fiscal. DLF has prepaid close to Rs. 2,000 crore of debt in last two fiscals.

Out of the outstanding gross debt of Rs.3,900 crore, -35% is lease rental discounting (LRD) debt against its commercial assets' portfolio, which further reduces burden on overall cash flows of DLF. Excluding the LRD debt, the gross debt was at Rs 2,552 crore as on March'22. In the development business under DLF, liquidity is supported by cash and bank balance of Rs 1,220 crore as on March 31, 2022 and the company emphasises to continue with its focus on debt reduction over the medium term.

The cash flow of DLF would also continue to be supported by the dividend income received from DLF Cyber City Developers Ltd (DCCDL; rated 'CRISIL AA/Stable'; joint venture [JV] of DLF with GIC; DLF has two-third stake in DCCDL), the rental arm of the group.

These strengths are partially offset by susceptibility to risks and cyclicality inherent in the real estate sector along with large contingent liabilities and pending litigation.

Source : Equity Bulls

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