Ladies and gentlemen.
Good morning.
Good day, and welcome to DLF Limited Q1 FY 2023 earnings conference call. We have with us today on the call Mr. Ashok Tyagi, CEO and Whole-time Director, Mr. Vivek Anand, Group CFO, Mr. Aakash Ohri, Chief Business Officer and Group Executive Director, Mr. Sriram Khattar, Managing Director, Rental Business. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Vivek Anand. Thank you, and over to you, Mr. Anand.
Thank you, and good morning to all of you. Welcome to DLF Limited Quarter 1 Financial Year 2023 earnings webcast. Thank you once again for joining us today. Hope you and your family are keeping well and safe. Our business continues to deliver consistent performance across all parameters. I'll start with the financial highlights for Quarter 1 Financial Year 2023, which is for DLF Limited consolidated results. Consolidated revenue stood at INR 1,516 crore, reflecting a year-on-year increase of 22%. Gross margins continue to operate in the 50%+ range. Quarter 1 margin stood at 53%. EBITDA stood at INR 488 crore. There is a drop in the quarter, in this quarter as the business is in scaling up phase and investing for growth.
The increase in staff cost is driven by organization scale-up and other expenses driven by business scale-up cost of marketing and brokerage. We follow a policy of fully charging off sales and construction overheads, for which the corresponding revenue will be recognized in future. Net profit at INR 470 crore, reflecting year-on-year increase of 39%. This was largely driven by significant reduction in the finance cost, along with growth in the JV profits. Residential demand continues to exhibit sustained momentum. The high demand for luxury homes has been a key trend that is expected to continue. Our residential business continues its steady performance and clocked new sales booking of INR 2,040 crore, reflecting a year-on-year growth of 101%.
The Camellias, our super luxury offerings, continue to remain the preferred destination across the super luxury segment and delivered a healthy sales booking of INR 350 crore during the quarter. Our new product offerings continue to command strong interest from the market and made a healthy contribution of INR 1,532 crore during the quarter. The contribution of new products in the total sales was approximately 75%. While rising interest rates may pose some challenges, we expect this structural recovery in the residential segment to continue. We continue to bring newer offerings across multiple segments and geographies. We continue to remain committed toward surplus cash generation from our operations. Continues to be a focus area.
We generated surplus cash of INR 421 crore during the quarter, which led to further deleveraging, and consequently our net debt at the end of the quarter stood at INR 2,259 crore, one of the lowest levels. I'll now move to the financial highlights for Quarter 1 Financial Year 2023, DLF Cyber City Developers Limited consolidated results. We witnessed steady performance across our office portfolio. Retail business continued its growth path and delivered a healthy growth. Rental income grew 20% year-on-year, driven by a strong growth in retail revenue. Consolidated revenue of INR 1,260 crore as compared to INR 1,041 crore last year, reflecting a 21% year-on-year growth. EBITDA at INR 961 crore, year-on-year growth of 18%. Net profit at INR 323 crore, reflecting a year-on-year growth of 60%.
Occupiers' attendance continues to exhibit steady improvement, indicating return to normalcy in the office segment. Our Chennai asset is witnessing approximately 80% attendance compared to pre-COVID levels, and Cyber City, Gurugram is seeing 50% attendance. We are witnessing month-on-month improvement in these trends. With sustained collections and steady improvement in occupancy, the office segment is well poised for growth. We continue to deploy capital for creating safe, sustainable and quality workspaces. Development of our new destinations across multiple geographies remain on track. Retail business continues to exhibit steady growth with improvement in consumption trends. Organized retail is expected to gain further share with strong preference for quality assets at established locations. Given these tailwinds, we remain committed to grow our portfolio across multiple geographies and hope to double our retail presence in the next few years.
Our strong balance sheet, healthy cash flow generation, coupled with a diversified pipeline of quality offerings, provide us a unique opportunity to leverage this upcycle. We remain committed and confident in delivering our business goals. Right. Thank you very much. We now open the floor for Q&A.
Thank you very much. We will now begin the question and answer session. To ask a question, please click on the Raise Hand icon available on the toolbar, or you may click on Q&A icon to raise hand or type your question. Participants connected via dial-in may press star and one. The operator will announce your name when it is your turn to ask a question. Please accept the prompt on your screen and unmute your microphone while proceeding with your questions. We will wait for a moment while the question queue assembles. The first question is from the line of Saurabh Kumar from JP Morgan. Please go ahead.
Hi. Thank you, gents. Good to see you on a Saturday afternoon. Sir, I had a few questions. One is effectively on this gross margin. You know your gross margins at 50%+ are the best in the industry, but when we compare you on EBITDA, the number is, you know, you are lower than the industry. I know that you have increased your staff and other expenses, but is there like a target level of margins you want to run at? I mean, should we expect a 35%-38% ballpark EBITDA at DLF, or how should we think about the EBITDA level? The second, you know, for Aakash is, we have seen price increases, Aakash, in The Crest.
Feedback is that price has gone to INR 25,000-INR 30,000 in the market. Is there any early feedback you have for your golf course extension project? Because Gurgaon finally seems to be going up in prices. When do you expect to launch it? What is any early indication on that? That plus Reis Magos. The third is on this INR 900 crore of CapEx in the parent business. The rental for this will be about what, INR 200 odd crore? Which specific projects are these? That's it from my side. Thank you, sir.
Thank you. I'll take the first question. Thank you, Saurabh, for your question. Let me take the question on the EBITDA. First of all, as I outlined that we are in a business scaling up phase and we are investing for growth, right? As we know that there will always be a delta between the time you scale up and the time you actually recognize the revenue, right? Having said that, if you really look at current quarter margin, we are holding on to our margins at upwards of 50%. To be precise, this quarter our margin delivery was 53%. Right? We are also committed to really bringing in new products which will continue to enhance our margins, right?
I'll just give you an example that the DLF City Floors what we've really launched in the last 18 months. There is INR 3,000 crore of City Floors what we've launched. They are all adding up to a margin of 55% plus, right? And overall, the new products portfolio what we've added in the last 18 months are committed to really enhance our margins as we go forward. Right? And yes, EBITDA last year, if you really look at our EBITDA margin was 35%. Yes, there has been a slight drop, but I will say that you should not be really looking at our P&L on a quarter-on-quarter basis. I think directionally, if you really look at we are investing for growth, so yes, there is a time lag, right?
I think if you really look at long-term, I think the product offerings, what we are really bringing in, they are all margin accretive, and with time, when they start recognizing the revenue, you will see that the EBITDA levels will start inching upwards of 35%.
Basically, Saurabh, I mean, just to elaborate on what Vivek said, I mean, really at 35% is definitely on the horizon. I don't think that's a challenge. It's an issue that basically right now because if you look at our absolute margin is INR 1,050 odd crore, which on the current run rate will be a number closer to INR 1,000 on a go-forward basis. I think once this lag between the revenue and costs corrects, I think as Vivek mentioned, I think a 35%+ margin should definitely be doable yet again.
Thanks, Saurabh. You mentioned about Crest price points as you are right in where they are today. That's also a function of a lot of other things that go behind. Not every property there, if you've noticed also in Gurgaon, is today demanding that kind of a price point. Also there's a lot of work that goes behind it and therefore we are committed to continue to make sure that post-sales, our service levels and deliveries are at par with what we had committed. That is also a function of making sure that the price points are stable and sustainable. These are all second and third transactions in the market, so I'm glad you mentioned it.
As far as launches are concerned, yes, we are working on as we had also presented earlier. All the products that you mentioned are being worked on, and yes, there is a visibility of launches this year. We are looking forward to it in Q3 and Q4. We are ramping up, gearing up. Just to let you all know that, today we are happy to mention that most of the international designers in the world today are aware of DLF, what products and
The quality of products that we kind of turn out and are spending their time and pitching for our products. This is across the board, I'm talking about. We work with most of them. We're hiring a lot of them. That particular thing is also going on. As far as The Sixty Three and other floors that Vivek also touched upon. For us right now, how we are looking at quarter-on-quarter is obviously the residual stock of super luxury, which is now minimal, but we want to continue to make sure that those price points are there where they are and we sell them.
We continue to focus on our floors, which is by now, I can also tell you that it's, you know, it's been accepted and there was a major gap in the unorganized market, I think, which we've gone and plugged. The DLF floors, they are not only accepted but are traded. And then of course, there are the group housing launches that you mentioned, and of course, Goa as well. We are on. Thank you.
Sir, on the CapEx.
Yeah.
Thanks.
CapEx on the new products, I'll split them into two. One which are in the books of the DCCDL platform. There we will continue to invest about between INR 1,200 crore-INR 1,500 crore over the next three to five years. This includes DLF Downtown Gurgaon, DLF Downtown in Chennai, the Mall of India in Gurgaon, the Vasant Kunj Mall expansion, et cetera. In addition to that, there are a few projects both in offices and retail in the DLF on the DLF platform, which include the IT park in Noida, the new mall which in Goa, which we have now named as DLF Avenue Goa, and the high street shopping centers in Phase 5 in Gurgaon and near Midtown.
This, I think, would entail an expenditure of about INR 500 odd crore, INR 400 crore-INR 500 crore, a year.
For a couple of years. Totally INR 400 crore-INR 500 crore.
Yeah.
Thank you.
Thank you, sir. I have a few questions on the margin, but I'll come back later. Thank you.
Sorry.
Thank you.
Thank you. The next question is from the line of Murtuza Arsiwalla from Kotak Securities. Please go ahead.
Thank you. Hi, Aakash. Question for you. You know, you've had a successful 18 months with the new product launches, et cetera. You know, about 1.5 years ago, you did carve out this 35 million sq ft. Any chances, I'm sure you must be working on it, but any communication you want to give on how you want to replenish that 35 million, given you've been 1.5 years at it, replenish that launch pipeline taking in more from the land bank?
Murtuza, thanks. Good question. With regard to launches and how we have kind of mobilized markets, if you see, I'm glad you mentioned those 18 months because we've been talking like this. If you see how we have gone into every market, and quietly, like I'll make a small point of Chennai. We were there about a decade back. We got in, we worked against all odds, outsider company, North Indian, whatever, national. Yet, I think the brand DLF prevailed. We got the maximum press, we got the maximum traction and I can't thank enough our investors. What happened there was that we have land banks, as you all know, across the country.
Today, hopefully we are demonstrating to you and to the organization is that every square inch of our land bank is monetizable as and when we bring them in. To the levels that, you know, we can actually deliver are the price points. If you see Chennai, we did above almost 40% over what the actual markets there are. You look at Panchkula and Tri-City, at one point of time, I still remember, three years back, it was completely written off. Today, our price points are again setting benchmarks in the market for others to follow. There is demand. Two major project, product launches are stated there. Basically what I'm saying is one step at a time.
What we are carefully and consciously doing is that wherever we go, looking at those markets, looking at responses, if you look at Indore and Lucknow, we've completely cleaned it up. Kochi, we've just got this one, Vyttila to go, but we've got other, another land bank. Everywhere where we are seeing buoyancy, we are seeing the DLF pull. And that, those areas we are now. In fact, I can't single out even one geography and say that, "Look, that's not accepting us or that's not." Every geography is wholeheartedly kind of gone and endorsed us. I think you will see. I just want to be cautious here. All I'm saying is that we go by what the business plan that we have given you all.
Today, I think there is a confidence even within our systems that we will not only move at lightning speed, but also can deliver irrespective of whatever the conditions are. I think that is important to know. Yes, to replenish, we've got enough. Every zone like Chennai, we've done one. We're already talking about two more. All that will now continue to happen. Panchkula, we did whatever residual about a year and a half back. Today, all our launches, as you know, are all new. Everywhere where we are other than Gurgaon, I'm saying, which is our hub, wherever we are going, we are making sure that first we seize the market, we do our conversations, and then we are on.
We will continue to replenish as we go along.
Murtuza, just sort of reinforce what Aakash said. We're doing all of this across India. I mean, make no mistake, our predominant area of focus remains NCR and Gurgaon, and we already have lined up, which we communicated when we met all of you a few weeks back, the launches that we have in the pipeline here. I think you'll continue to see a series of new products coming in, not only in the next 18 months, but beyond that as well.
Thank you.
Thank you. Thank you, sir.
Thank you.
Thank you. The next question is from the line of Mohit Agrawal from IIFL. Please go ahead.
Yeah, thanks for the opportunity. My first question is, Aakash just wanted to clarify, did you mention that you are looking at a phase five launch in the second half? Can you just clarify that?
No, Mohit, not DLF 5 launch is not second half. That is other projects, further down, so not DLF 5. DLF 5 right now
Close. Yeah.
DLF 5, we are doing a very premium launch, which is called The Grove, which are the gold standard of floors, if I can call them. I strongly recommend a lot of you and everybody else to invest, because that's the last parcel of, let's say, plotted development ever that you will see in one of the most premium geographies of the country. That is something that we will be launching in the next quarter for sure. If you're referring to group housing, that's a little further away. I think this is going to be a very prized catch for whoever can get in.
Okay. How big will that be in terms of million square feet?
For sale value, that is going to be INR 1,600 crore-INR 1,700 crore to about INR 2,000 odd crore. That is something which is there, yeah. It's going to be very exclusive.
And-
Very private.
Sure. What are the timelines for The Crest 2 launch? What are your thoughts on that?
Crest 2 will happen soon. It will happen as we go along. Saurabh just mentioned, thankfully, you all are now talking about these price points, and I am not so... I think market has endorsed them. Overall infrastructure also plays a huge role. Then the community, I think, what I always believe that what makes places and companies are its people. This community that DLF 5 has today created is very aspirational, very. I think you will hear from us, but I don't see it happening in this financial year, to be honest with you. Because it'll require. That's going to be a big kind of a mammoth job, and it'll require that much of detailing, and preparation.
Not this financial year, Mohit, but look forward to it.
Sure. Coming to, you know, we have done INR 2,000 crore of pre-sales this quarter. Now first quarter, as you know, is typically not the strongest for residential. You know, a couple of months back in the analyst meet, you had given a guidance of about INR 8,000 crore. How do you look at that, considering that we have a strong launch pipeline? Do you want to revise that 8,000 crore number, considering we've done INR 4,000 crore in the first quarter itself?
No.
2,000 in the first quarter, sorry.
We won't revise anything for now. We will continue to, I mean, stick to our guidance, but as you rightly said, yes, in fact, just before the call, I was sharing this data with my colleagues for the last five years, quarter one performance. Yes, it's definitely very encouraging. Again, we're not getting carried away with anything. There's also headwinds, you know, with everything else going on in the future with interest rates and all that. Even we would like to keep the buoyancy on, but still, I think there's always this bull and bear. You know we always stay grounded about these things. I think we've got some launches going on. We've got certain things coming.
Q2, I think we'll focus on right now what we have and we will keep the guidance as is.
My last question is on your cash flows. See the collections have been at about INR 1,000 crore, whereas the sales pre-sales number has moved up from about last four quarters. When do we see that catch up happening in terms of when do we see the collections moving up to the next level? Also, the overheads have been elevated for last two quarters in the cash flow. Is that the new normal on the overheads?
Yeah. Hi, Mohit. Your first question is on the, let's see-
On the collections.
The collections for this quarter, to be precise, is around INR 1,000 crore, right? We expect as we scale up this collection number to really move up, right? I think in the last call, I had mentioned that last year we made a total collection of INR 4,400 crore. We are committed to really scaling up on that in line with the sales growth. I think that is something we are committed. Answering your question, you will see the collections picking up starting this quarter. Right? On the fixed cost, yes, you are right? There has been, the numbers have really moved up in the last two quarters, and that's what I explained, right? The way to really look at is that we are investing for growth.
As we are scaling up our business, we need to really do that. What is important to really see is that where are we really adding this cost? We are adding in supply organization and we are adding it in sales organization, which is really helping us really grow the business, right? In terms of, if you remember last year, we had indicated that, when we had given a sales guidance of INR 4,000 crore, we had said that our fixed cost will be in the range of INR 550 crore-INR 575 crore. Now since we are really scaling up, we are almost doubling our business, right? We expect this to really move up, right?
We expect this cost to really move up close to INR 675 crore on an annualized basis.
Okay. Okay, thanks a lot. I have some more questions. I'll come back in the queue.
Sure.
Thank you. The next question is from the line of Pritesh Sheth from Motilal Oswal. Please go ahead.
Hi. Thanks for taking my question. Firstly again, on the collections, specifically in Midtown, when do we expect, you know, collections from Midtown ramping up? Because I think we are at already INR 2,500 crore of sales that we have done and still left with INR 2,200 crore of collections. Roughly 10% we have collected. What's the trajectory on that?
All new projects that we have launched, whether it's One Midtown or OMR, they're, I won't say that these are new geographies for us, but they're new challenges. Also we've got back to them almost after a decade in both these. Logistics on ground, a lot of things that had changed. We had a tremendous kind of a sales pitch and everything else, you know, was a catch-up. Then as far as these things are concerned, you know, just, I'll just quickly, I must digress and give you a thing.
The adjacent properties are now almost at abutting One Midtown almost INR 26,000-30,000 a sq ft, Phase 3 of Capital Greens, which was hovering around well about almost INR 15,000 just about 15 months back. Now this is what it is. I see that ramping up now. We had certain logistic issues and all. Also, the scale of the business that came in kind of you know was pretty large. The authorities were you know there were certain things that even agencies weren't formed. I'm talking about the external ones. You know, when you collect those 10% today with RERA and all, you have those registries to be done.
All of that, I'm talking about the external support systems that kind of had to be ramped up in both these zones. I think that took time. Therefore, you know, the call could only happen once all these things are lined up. Though we had budgeted for certain delays, but we hadn't budgeted for this kind of thing because there were completely new agencies involved. You will see that now ramping up and going on. As you know, these things are, if you've seen even both these projects, they launched at a certain price, and they're kind of trading at a certain price today. They're both very healthy in terms of these transactions.
I think I don't want to speculate there. Right now, you will see that, getting better quarter after quarter.
Just to add to what Aakash said. See, since this payment plan is linked to construction, and as the construction progresses, right? We are expecting a major milestone to be achieved in October. Coming specifically to your question, you will see collection ramp up starting quarter three.
Yep.
Got it. You've made an interesting comment on slide 12, that is on, you know, industry supply ramping up. The first point on slide 12. New supply picking up. Can you elaborate on that and what sort of supply that is coming into market and, you know, is there any impact in our plans or our, you know, pricing strategy from here on?
Basically asking demand continues to grow and new supply coming in the industry.
Yeah, yeah. Overall industry, I see, as I said, in the previous question also I said, we as an organization, I think we continue to be cautious about our approach we always have. There is demand. See, the only thing that we will continue to give our guidance on is the margins. We, you know, even if there is a compromise on velocity, I think margins can't be compromised at all. Therefore, it's like a chicken and egg always. The industry product launches, if you see our performance over the last six quarters, it has been evenly distributed with new launches, whether it is a INR 1 crore product or whether it is a INR 30 crore-INR 40 crore product.
We have been continuously demonstrating our sales performance and collections across the board, across geographies, across product lines and price. So here I feel that there will be you will see new products, but in the same line. There is. As far as DLF is concerned today, we can safely say to you that we have a product for everybody at almost everybody's price point, because I think at that level of aspiration we'll be able to meet. What we have mentioned in the next three quarters to go, I think we will stick to that right now. There are no new products other than what we've already mentioned are going to come in. That's enough.
We've got group housing, we've got floors, we've got commercial, we've got a very healthy. Yeah. Also the other supply, I feel that markets have to be competitive. People, you know, when you put things in perspective, only then, you know, your values are also seen and appreciated. Yes, there will be other supply coming in, and I hope they come in both in Delhi and elsewhere. I think one thing I can definitely say is, let's say, for Saurabh mentioned 63. As soon as we announced or even started work there and, you know, got our papers done, there are 3 projects already announced to launch. Obviously it's good because then there are certain price points established. The demand we know.
Delhi also, you will see industry launches here, but that only helps us grow. I think the markets are getting back to now happily putting their money back into real estate, and which all of us want. The larger that pool is, the better it is. I think overall I'm also hearing more launches and all, so it's good. I mean, there's enough space in this country for real estate, for everybody.
Yeah.
Thank you.
Got it. Thanks. One last question from Mr. Khattar. So where are we at, you know, our plans on the retail expansion? I'm just pointing it out from the perspective of when do you think that it will get reflected in our, you know, slide 27 table about, you know, under construction portfolio for retail?
Yeah. Under construction, let me split it into two platforms. One is the DCCDL platform, one is the DLF platform. In the DCCDL platform, our plan for Mall of India, Gurugram, with the international architects, which is CallisonRTKL, are at a fairly advanced stage, and I think in another about three months, we should be able to more or less finalize the plans. That three may go to four or five months. Please appreciate that this is going to be the largest mall in the country, and we are going to bring the best experience that one can have, and therefore the planning is taking much more, and then execution will be relatively faster.
The expansion of the Vasant Kunj malls is also under an advanced stage of planning, and we should close it over the next two quarters. On the DLF platform, the construction of what we earlier used to call Patto Plaza, which is now DLF Avenue in Goa, is moving full scale. At the same time, the high street shopping center, which is Summit Plaza in DLF Five, is also moving. We expect both of them to be in the market by mid- to later part of calendar 2024. The high street shopping center near Midtown is we should start construction in the next two to three months.
Got it. That's it from my side, and all the best. Yeah.
Thank you.
Thank you. The next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.
Hi. Thank you very much, and good morning to everyone. On your 7.6 million sq ft new launch plan for this year, I mean, let's consider how much has been done in Q1 and how much, and what would be the sort of, you know, rollout plan. Within that, if you can talk a bit more about 3.3 million sq ft of luxury housing.
Yeah. Good morning, Sameer. Let me take this. The guidance what we've given for the product launch for this year is 7.6 million sq ft, of which 0.7 million sq ft is what we've actually launched in quarter one. Right. First of all, I would like to say that we are on course to achieve this number, right? We have a quarterly build-up from now onwards. Next quarter, again, we have launches adding up to almost INR 2,000 crore, which are going to hit the market. In quarter three, we have close to INR 2,500 crore of launches, which are likely to hit the market. The last quarter will be again close to anything INR 2,000-INR 2,500 crore.
In all, it will be almost INR 8,000 crore-INR 8,500 crore of product value, which we'll be launching during the year. Right. Specific to your question on premium luxury housing, which is 3.3 million sq ft, this is largely, as Aakash talked about, this is floors in DLF 5. Then we have Goa Residential, which is going to, y eah, perhaps phase 1 of Sector 63.
Right. Those are the three which are sitting in this bucket of premium storied luxury houses. Yeah.
Yeah. Thanks, sir. Very helpful. The second question is, you know, when we think about the demand outlook in general, what are the risks to it, you know? Its demand is good. It's been good for the last few months across the price point, across locations. You know, how long can this continue, and what are the risks to this?
Sameerji, you know, basically risks though, you know, I think the risks frankly are more macro than micro really in that sense. The macro risks, you know, I mean, when we had met, I mean, I know you were unfortunately not able to attend it. You know, six weeks back, a lot of risks which loom on the interest rate front and, you know, macro recession, which still looks slightly farther away now appears slightly closer. I mean, the Indian demand has so far at least, you know, managed to by and large beat it, as you can see, not only from us, but from all listed developers in this space.
I think clearly if you're talking of 100-125 basis points increase more in mortgage rates, you know, with some recessionary trends, I think it will be naive to say that it'll have no short-term impact. What we are all hoping is that the impact will be transitory and, you know, it will not have any lasting impact, but a little bit of impact or say two more 50 basis point hikes if they come in the home mortgage rates move late into 7.5%-ish range. You know, I'm sure it'll have some impact. People will start slightly more before buying into a new product.
Be the price buoyancy that generally industry has witnessed in the last four to six quarters, obviously, you know, makes things, you know, slightly more costly to buy than what they were four quarters back. I think it's a dynamic question. The fundamentals of the economy and the market remain very solid. The players who are gaining market share and reporting good sales, most of them are in the organized sector, you know, with extremely strong balance sheets, hopefully extremely strong governing mechanisms. I think the challenges that we had in the early 2010s should not be repeated for, you know, for a large part of them. Yes, I mean, there is some headwinds for sure, which I think each player and each geography will have to navigate.
Yeah. Thanks. Finally, on DCCDL, a couple of questions. One is, we are still at 88% occupancy. How's the pre-leasing environment? And, you know, when do you think this goes back to your usual, you know, mid-90s? Second is, I know we've talked a fair bit about the REIT formation, but in your mind, in the mind of the two owners, what are the pros and cons, you know, that that's sort of keeping you know, away so far?
On the vacancy levels at 88%, this includes the vacancy level at our SEZ in Silokhera. We plan to go back to, say, the mid-90s in the next four odd quarters. The one bottleneck that had come about was the SEZs, where the take-up by the new units has slowed down quite a lot. However, with the introduction of the new bill, which is Development of Enterprise and Service Hubs Bill, in the monsoon season, we expect that demand in these spaces as the new avatar of IT parks should pick up from Q3 of this financial year. Therefore, the occupancies will start coming down. The issue that is being faced today is not that there is no demand.
It is just that the business leaders are taking more time to decide the number of new work spaces that they need. Because while hiring is going on in the IT sector at a very good clip, the comeback to office is slower than what they had projected. This is good news and bad news. The bad news is that the decision is taking a little time, but it is showing signs of coming back very strongly. The good news is that when we talk to the senior guys in the IT industry, they say that even if it is a hybrid model, the better companies and the captives and GCCs are obviously planning that they will have to cater to the peak requirement of attendance that will take place during the week.
Therefore, their requirement of more spaces will be much more. Plus, this dedensification and having more collaborative spaces and spaces where people can interact will also add to that. One or two things, if I may please take the liberty of sharing with you. It's very clear now in the market that the tenants are moving to quality assets. I mean, grade A buildings is passé now. They are moving to grade A plus and A plus plus buildings, which offer a very high level of sustainability, safety, wellness, which have a very strong level of compliance and infrastructure, and equally importantly, opportunities to grow in that area. Therefore, if you see the plan that we have for offices, we are in the three geographic markets where we have opportunities to grow for the next five years, six years.
These are basically the Gurgaon market, the Chennai market and the Noida market. On your question on the REIT, sir, on a slightly lighter, you know, tone, frankly, we were far clearer on the REIT before the analyst day, when a number of analysts came and confused us, you know, whether we should be doing or not. Having said that, frankly, sir, I think today and, you know, I mean, we have Navin Kedia, the CFO of the REIT who's actually doing the grunt work on that. I think we're at a stage where if the two shareholders press a button, I think in 6-8 months.
Right.
We can get the REIT to the market, you know. I think most of the pre-work is done and behind, you know. Now the key is what is a good time and, you know, what is a good intent. I think the pros and cons, Sameerji, you know better than most of us, you know, frankly, of that given the challenges in terms of the high development potential that Cyber City has, you know, there are obviously inherent differences between this portfolio vis-à-vis the portfolio of the other two other three listed REITs, which have a higher proportion of the rented assets versus the developed assets. In a REIT format, you know, dividends obviously go up, but then obviously all CapExes have to be debt funded.
It does inherently increase the leverage in the portfolio, while obviously the LTVs and all will keep on going down. All of those things are there. Then there's the macro piece where the initial 110 basis points interest rate hike, you know, we had thought does put a slight spanner in the works. The fact that the listed REITs have actually performed extremely well in the last few weeks, you know, since the entire interest rate hike has happened. You know, for the first time, everybody, all the pundits used to tell us that the compressed cap rate has to be G-Secs plus 50-100 basis points. The compressed cap rates of the listed REITs are G-Secs minus, you know, something. Taiyari puri hai.
I mean, I think we are more or less prepared. In six to eight months, once the two shareholders press the button, we can go. I think there are inherent pros and cons that I think both shareholders do need to consider. To be fair, I think it's obvious that both shareholders may have different objectives driving the REIT. The fundamental of the REIT still stay very strong, you know, including the fact that it gives an opportunity for inorganic expansions as well, hopefully in a cashless zone. That's where we are. Most of the pre-work that had to be done, I think is by and large done. You know, some clarifications, et cetera, will keep on coming.
I think we are at a stage where the two shareholders, you know, who are constantly in discussion on this piece, we continue to be at some of the work streams, including, you know, some long cycle work streams like land deals and all, you know, are underway. So let's see. I mean, watch this space is all that I can say right now.
Thank you very much.
Thank you. The next question is a text question from Biplab Debbarma from Antique Stock Broking. The question is:
What are the projects, new phases launched in this quarter?
What are the?
What was launched this quarter in Q1.
This quarter were the floors. Primarily if you're talking about the new projects, it was the floors, the new launches.
A small commercial complex in Gurgaon.
Yeah.
Small commercial in Gurgaon.
Small commercial project in Gurgaon and floors. Of course, there was the other residual of super luxury and OMR. Yeah. This quarter means floors and commercial.
Thank you. The next question is from the line of Abhinav Sinha from Jefferies. Please go ahead.
Hi. Sir, couple of follow-ups on what we've discussed so far. One, on the rental side, when do we see Downtown Gurgaon becoming lease income earning? And, you know, similarly, what will be the exit run rate for FY 2023 as well as say FY 2024, if you can give us some guidance. That's the first one. The second one is on the DLF DevCo cash flows. Good start to the year, but, you know, considering the dividend outflow in 2Q, what are we looking for now for the end of the year? I mean, do we end, say, below INR 1,000 crore for net debt? Thank you.
Okay. The questions on the start of rentals for DT Gurgaon, I'm pleased to say that we've got the occupation certificate end of June. The process of handover of the spaces to tenants has commenced. While the rental inflow will start from October, I think it will be another few months after that when it comes to its full form. The run rate of the rentals in DT Gurgaon is in the ballpark of INR 18 crore-INR 19 crore a month. In terms of the run rate for DCCDL as a platform, FY 2024, I mean, the exit run rate at FY 2023 should be about INR 4,400 crore, and 12 months later, it should be about INR 4,800 crore, INR 5,000 crore, 4,900 crore.
Khattar, on FY 2024, just to be clear, we don't have another building opening up, right, in the next 12 months after we are done with Downtown Gurgaon?
Yeah. No, we have. DLF Downtown, which is 2.2 million sq ft, is
Right.
Going to be finished in the middle of next year. We believe that the rentals for that will start in the third quarter of FY 2024.
Okay. Thank you. Thank you. Thanks for the clarity. Yeah.
Sorry, if I may please add, we have had a fairly good run till now where all the new buildings that are coming up, we are successfully able to pre-lease them. Our endeavor is the same for IT, for the Downtown, Chennai also. Maybe because it's 2.2 million sq ft, and given the size of the Chennai market, it may be 80% or so, but our endeavor is to see that rentals start immediately after the OC comes in.
Abhinav, not in the Cyber City portfolio, but I think by the time fiscal 2025 hits us, our joint venture with Hines should also be in a, you know, in a-
In a place where.
In a rent yielding mode.
Rent yielding. On the DLF platform, even the Noida IT park.
Yes.
Uh, by the-
Right.
Later part of this year, about 800,000 sq ft-900,000 sq ft of the data center and the IT park, the first building should start yielding the rent for us.
Okay. The two retail will also start by that time, right? The phase five and the Goa one.
2024.
They will start in FY 2024.
Yeah.
Uh, s-sorry, in the calendar-
FY 2024?
They will probably go.
In calendar 2024.
Of FY 2024.
Right. Right. Okay.
In-
Yeah, yeah. Now on the second one. Yeah.
Including DLF Avenue in Goa.
Right. Yeah. Okay. Got it.
Okay.
On the second one, the DLF. Yeah.
Yeah. I'll answer that, Abhinav. First of all, good morning. So our collections, you talked about collections. I briefly answered that the collections will continue to grow quarter on quarter. You will see that in terms of phasing, second half will be higher compared to the first half because there are a lot of projects which we have launched in second half of 2021, which will be completing, which will be coming towards the end of construction cycle, so there will be corresponding collections happening therefore from that. With regard to quarter two in particular, yes, there will be a dividend outflow during this quarter, but two-thirds of that, as you know, will be funded by DCCDL cash flow.
Sir, on a net basis, just to clear up, we had, you know, close to INR 2,000 crore net debt reduction in second half last year, and basically 2Q, 3Q, 4Q combined. Do we see that again?
See, Abhinav, I think we opened with a net debt of INR 2,600 crore, and you've seen this quarter again we've dropped our net debt upwards of INR 400 crore. Right from the beginning, we are not working on a number, to be honest with you, but we are committed to bring it down quarter on quarter is what I'm saying.
Abhinav ji, you know, frankly, the net debt number, let's face it, has now meandered into an irrelevant number.
Correct.
I think a lot of you have it programmed in your muscle memory. You know? I think free cash flow is the focus that we should all focus on. I think the free cash flow will keep on coming.
Right.
You know? Fair enough. Net debt, more frankly, INR 1,125,898 I think it's really meandering into a zone of comparative insignificance from an interest burden standpoint.
Right, sir. Thank you. Thanks and all the best.
Thank you, Abhinav.
Thank you. The next question is from the line of Kunal Lakhan from CLSA. Please go ahead.
Yeah, hi. Good morning. First, just to follow up on the REIT side. This is the first time in the last few quarters you've sounded a bit, you know, cautious on the intent to do the REIT. You know, especially, you highlighted the structural differences between the REITs and us. First, wanted to clarify if there is any disagreement between the two partners on the intent to do the REIT?
No, absolutely not.
Sure. Because the concern that you highlighted, right, in terms of like, you know, the ready portion versus under construction, I mean, we knew that from the start, right? Just wanted to understand what could be the deal breakers here.
No, no. No. There are two pieces. You're right. We knew it from the start. We've had a very intense discussion between ourselves, both at DLF and with our partners, on whether we should change the perimeter of the asset portfolio. Finally, we have agreed that we should go with all assets in Cyber City as is, including the entire development potential. Obviously that does create, as you know, a certain pressure on the financial metrics which the bankers have rightfully highlighted. I think we're just working on some of those tweaks, you know. As you know, in the current fiscal, the two Downtowns in Gurgaon will get completed. 12 months from now, the Downtown in Chennai will get completed.
Each of these are important completion, you know, from a rent yielding versus a development portfolio standpoint. I think both the sides are clear that we need to move it at a time when the macro is most conducive for value maximization. Luckily, neither of us needs to do it for liquidity, you know, frankly, and that is the most important piece. Both of us need to ensure that we do it at a time when actually we can maximize the value of this.
Just to clarify, it's more than the intent, it's more of a timing issue.
It's a timing issue.
Yeah.
It is not an intent issue like that, for sure.
That's helpful. Secondly, you know, we have announced a 50% higher dividends for last fiscal. You know, historically our policy, we've never had a formal policy but, our rather like an informal policy has been that, you know, we have always passed on the dividends that we have received from DCCDL as, you know, dividends to DLF shareholders. This year we saw, you know, development business scaling up on cash flows as well, which will continue to happen, right? Would we look at, you know, formulating a dividend policy, you know, on, just to give some outlook on to the shareholders?
If you can give us some direction on how we should look at dividends going ahead?
Okay. Right now we will keep the REIT discussion out of the dividend policy because, you know, the REIT will dramatically alter the dividend. Assuming that the REIT will take place when it will, our dividend policy is very clear, boss, that you are absolutely correct. For the last few years it was the Cyber City dividend which was being distributed. Because let's face it, the DevCo did not have distributable cash flows. It's only now over the last four to six quarters that the DevCo has begun generating distributable cash flows. Initially we had the discipline that we wanted to get the net debt under control. Now that Vivek's managed to get that down to almost like a INR 2,000 number, we felt emboldened enough to start declaring a small token, INR 250 crore dividend from the DevCo this year, you know?
Hopefully if the DevCo cash flows continue to strengthen, you know. We are focusing on, you know, at least a slight increase, Vivek. Correct me if I'm wrong.
Yes.
of the DevCo dividend year-on-year. On the RentCo side, I think it's pretty clear within the pre-REIT scenario that the free cash flow of the RentCo should be, I mean, the first charge on that free cash flow is of the CapEx.
Yeah.
That they need to incur. The residual is, you know, part of it goes into dividend. Right now, Cyber City this year has declared a INR 1,050 crore dividend. You know, hopefully that will be sustained and, you know, maybe as more and more properties start keep on coming, it will grow. Obviously once the REIT happens, these dynamics and these numbers change dramatically.
Sure. That's again helpful. My last question was on, you know, earlier in your comments you mentioned that the supply from, for the industry has started to increase. Any chance that we'll look at up-fronting the new launches that we have earmarked for FY 2022? The 7.6 million sq ft that we have, you know, outlined. Any chances that we could upfront these launches?
Kunal, I think last year if you really look at our total launches were 6 million sq ft. This year it's around 7.8 million sq ft, right? There is an upscaling which has already been considered. Now if you're saying within the quarters are we really planning, I think as you know that these launches, there is a lead time involved in planning, designing, and approval process. I think at this point in time, whatever plans we have put, we will stick to those plans and we are committed to really delivering them on time.
Sure. Thank you so much and all the best.
Thank you.
Thank you. The next question is from the line of Saurabh Kumar from JP Morgan. Please go ahead.
Sir, just kind of follow up on this cost piece. So Mr. Tyagi, I heard you say 35% is target, but the issue is, as your sales grow, your operating costs will keep increasing. You know, it's unlikely to come down. I just want to make sure that, I mean, what is the target EBITDA or does DLF have a target EBITDA or just you have a target gross margin range? That's the first-
I mean, so I think, Saurabh, as Vivek and I have both, you know, mentioned, at the start of the earlier question, we obviously have a target EBITDA, which is the 35%+ level, you know, for sure. You know, our costs have gone up. I think, and Vivek, you have this nearer to your, I mean your ear nearer to the ground. I think the costs have now begun sort of stabilizing now because that one-time ramp up. Please appreciate, Saurabh, we were, I mean, two years back we were at INR 2,500 crore sales with the company with like hardly any new projects, you know. From that we have suddenly scaled up new geographies, new product series, also supporting the
Obviously we get a piece for that, but supporting the Cyber City CapEx expansion as well, all of those things. I think we are sales. Predominantly sales, but even the non-sales income have moved up, you know, in that sense. We feel that I think the rate of growth of the overheads now is more or less plateauing. What I said was that the margins will hopefully keep on growing because the margins that we look at today are of the company, of the products which are on the sales levels which were there three or four years, you know, prior. I think as the new cycle takes off, you know, and sort of begins catching, hopefully this ratio will keep on improving, you know, frankly.
Yeah.
Great.
Yeah. I think also just for the sake of repetition, I think the new products what we are really bringing into the market, they are margin negative upwards of 50%. I'll give you an example of City Floors, INR 3,000 crore of products which we have launched. They are almost close to a margin of 55%. The one which we are planning in quarter three will be close to 60%. I think very clearly they are margin negative. The other thing what we are really doing is when we are beefing up the organization, the reasons what we are really working hard is to really make sure that we improve the speed of execution on ground. As we improve the speed of execution. Right. It will help us record our revenues.
I think it's a combination of all what we are working, right? Speed of execution will get revenue faster, right? I'm able to grow my top line faster. My margins are new products, right? The hurdle rate of 50% is really going to make sure that I continue to really replenish at par with my existing margin threshold or even higher. As Mr. Tyagi said that the cost base has been reset, and I think that's not really going to really keep growing from here, right? Therefore, hopefully, all this will really result, right, in the near future, where we will surely hit the EBITDA of 35% and continue to really improve thereafter.
I hear you, Vivek, but you know, if you look at your slide 9 and 10 of the presentation, the new project gross margin, I mean, you claim INR 1,800 crore of gross margin against sales of INR 4,600 crore on page 10. The gross works out to nearly, you know, more like 40%, not the 50% mark. I'm sorry to belabor this point, but, you know. What is giving you the confidence that this number kind of gets sustained?
Saurabh, I can separately share the details.
Yeah.
Product wise.
Okay.
I think as I give you a big example, right? Out of the total INR 4,400 crore, which is what we've really done, say, in the past couple of quarters. I give you one example. The biggest products, right, which is floors, is at a 55% margin, which is almost INR 3,000 crore, almost 65% of that. I'm happy to share the details offline.
Okay. Just one follow-up question, sir. You know, historically in 2012 to 2014, we used to have huge cost escalations, you know, versus what the budgeted numbers were. Is there anything you have done in this cycle to make sure because inflation is hitting? Basically to manage your budgets better, in terms of and what's your like-for-like cost increases you've seen in the portfolio versus the January start to today. Thank you. That'll be last question. Thank you.
You'll have to maybe repeat what you just said.
Basically, you know, historically we have seen in DLF the cost escalations have been very massive, at least in the last decade. This time around, have you done something better to basically ensure that the cost escalations don't hit you because you're now again entering an inflationary period?
Okay.
The second is basically what's the like-for-like cost increase you've seen versus budgeted to date? You know, what's been the experience in the last six months?
Okay, understood. I think on the fixed cost, I think, Saurabh, I think we've been very clear on our guidance. I think we gave a guidance when our business was INR 4,000 crore. Again, I outlined my guidance on fixed costs when we are scaling up to INR 8,000 crore. I think let me move to the construction cost. I think that's where I think your bulk of the question is, and I think one of the learnings, I think what we have really applied is to really very closely monitor the construction cost. Just to let you know that we, at this point in time, we have more than 35 live projects on ground and we make construction budgets every month.
There is a review which happens every month in terms of how the construction cost is really moving. For all the projects which are live and for all the projects which are there in the pipeline, and that gives us early warning in terms of really positioning our pricing for that product, right? I think that's something which is really embedded in our business. Like I said, as a margin hurdle rate, that's very, very large part of the project budget discussion, what we really do. There is a very high focus on cash. While there is a hurdle rate for margin, there is a hurdle rate for cash. The construction budget reviews, what we do on a monthly basis, clearly keeps us very close to the ground reality in terms of how the inflation is moving. Yeah.
The one mistake that we did in the 2012-2014, since I am a survivor of that period as well, and which we are not repeating now and which sort of ties into some of the questions raised in the call on up-fronting of launches, et cetera, is that at least definitely on the high-rises, we are definitely not going to launch anything till all of our contracts are in place.
Yes.
Designs are done and the good for construction drawings issued. Actually, frankly, and Saurabh, I mean, since it's eight years in time and now the discussion is technically timed by the fact is that a large part of the hits that we got that time were partly on account of inflation, but partly on account of the fact that we had maybe launched those products prior to doing a detailed cost estimation of where we were. I think that mistake is definitely not happening. Obviously, the inflation on commodities and all, as Vivek explained at length in the last quarterly call, has taken a toll. The good news is there are no surprises that are happening.
Like, you know, I mean, every quarter, almost every month, you know, even if a project cost goes up by INR 1.25 crore, you know, the business leaders, Devender Singh or Vishal Damani, I mean, they are on top of it, RK, and everybody knows. At least the surprise element is not there. I mean, yes, I mean, obviously we can't control the macro inflation, but that is the way. This, I don't think this discipline we necessarily had in the 2012-2014 period.
In fact, if I were to also add, we are also further strengthening our project management process. One of the things we are really doing is that this whole project management, which a large part of it we do outside ERP, we are planning to really bring it into ERP so that we can really closely monitor the execution of the project, the planning of the project, the cost escalations, right? As we are scaling up, we are really getting ready how to really handle the scale as we move forward.
One thing that I'd like to add to your point, Saurabh, which I feel we never get any marks for is, obviously one is the inflation and all the other financial related matters, which is, we can't take away from it because it's business. The other thing I think our biggest thing is that we continue to improvise and to the point that you mentioned, we, irrespective of what our financial commitments have been to our investors, we have gone back and bettered the product in its life cycle. If you ask me, I think that is something that we have continuously done. We can't take that out of our DNA. Those projects have never gone back and given us more money. Definitely they have done wonderfully well for our investors.
You look at it from any point of view and all those products, we have gone back to you know making them better. That both from the point of view of the product and from the point of view of what the actual investment returns for our investors are. Investors, I continue to say that not to us, we may have lost money. I think that is something that we are hopefully changing. I don't know, I mean, financially, yes, everything.
I think to continue to better ourselves every day and to keep the aspirations going, I think that is something that I think it's more of a, I'd say, you know, you really can't put a finger to it, but that is something that I feel collectively has helped keep the DLF brand, you know, on top and continue to make us aspirational. We've done it on our account, you know. I think that is one thing also probably, I don't know whether we can still change, but I think there's a hell of a lot of discipline as Vivek just mentioned, and Mr. Tyagi every month, also to add to what Vivek said, that every time there is a INR 1.5 crore increase somewhere, it's passed on to me too. I understand the pain more than any one of you, so trust me. Thank you, Saurabh.
Good together. Thank you. Thank you, guys.
Saurabh and our other analyst friends, if I may take the liberty of adding, I would request you to please go to slide number 26. Which again, what Akash was mentioning are some of the softer issues which probably don't get highlighted when we are talking of numbers all the time, is that in terms of safety and sustainability, we've taken a leadership position across the globe now, and we have one of the world's largest, U.S. Green Building Council LEED Platinum certified portfolio. We have the largest portfolio in LEED Platinum Zero, which is in the area of water, which is again the largest portfolio in the world. Recently we have got the LEED Platinum for the cities and communities for DLF Cyber City, Gurgaon. You guys, most of you have visited it. You know that it's.
While it's sitting in the Cyber City, it's not a gated community and it is open right across and is really like a small city. We are the first developer-owned community in the world which has got this Platinum rating. I think as we go forward, these steps that we take in the area of, safety and sustainability, help us position our products in a better way and also contribute to what is now become important in terms of sustainability and carbon, neutrality.
Great.
Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Ashok Tyagi for closing comments.
Again, thank you all of you for taking your time on this Saturday and joining us for this call. We could have waited till Monday, but we rightfully felt that we should do it, you know, the day after the results. As you know, I mean, the results as Vivek and everybody has explained to you have been reasonably robust, and I think we are looking at a good year, hopefully. I mean, the current year could have some more macro headwinds as we outlined than the previous year had. I think clearly our basics are now falling into place. The RentCo piece is actually now performing far better than what it was 12 months back when we were at the peak of COVID. The vacancy levels were dropping.
New CapExes are back in play. Retail has had a dramatic turnaround. I think hopefully as we keep on reconnecting back to the required rhythm, we will keep you abreast of all the new developments that are happening, including the new launches and hopefully you continue to enjoy your support. Thank you.
Thank you.
Thank you. On behalf of DLF Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.