DLF Shares Rise As Morgan Stanley Raises Price Target
Workers cycle past the site of a project proposed by DLF Universal Ltd., in Gurugram, India. (Photographer: Amit Bhargava/Bloomberg)

DLF Shares Rise As Morgan Stanley Raises Price Target

Shares of DLF Ltd. rose after Morgan Stanley raised its target price for the real estate developer, citing a potential recovery in its key market Gurugram and robust launches, among others.

“DLF is gearing up to start a multi-year new asset creation cycle for residential and commercial projects,” Sameer Baisiwala and Pooja Bhatia of Morgan Stanley said in a report, as the global investment firm maintained its ‘overweight’ rating on the stock and raised its price target to Rs 264 apiece from Rs 211. “This should unlock value in its large land bank and address the key investor question.”

The developer in its second-quarter earnings commentary said it has identified a strong pipeline to be launched across various segments and geographies over the next few years. “An improving physical market, better customer affordability, and demand consolidation should benefit DLF and help doubling its quarterly presales to Rs 1,000 crore in FY22,” Morgan Stanley said.

DLF’s core market in Gurugram, according to the research firm, too, could be on the mend after a gap of six years. That’s on account of a sharp decline in inventory of unsold projects under construction. “Gurugram, where DLF has its largest land bank concentration, could also surprise positively,” the report said.

Besides, valuations at a 45% discount to forward net asset value and close to one standard deviation below the eight-year mean appear inexpensive, according to Morgan Stanley.

But there are risks as well. A prolonged slowdown in the National Capital Region market, worsening of the Covid-19 leading to higher vacancies, delay in the new launch cycle, slowing sales velocity and a quick rise in interest rates are a few highlighted by the investment firm.

Morgan Stanley’s Bull Case For DLF:

  • Price target of Rs 367 apiece
  • 12% discount to March 2022 NAV
  • Faster monetisation of unsold inventory
  • Robust new launch momentum
  • NAV discount compression and stronger execution
  • Higher liquidity
  • Compressing of equity risk premium

Morgan Stanley’s Bear Case For DLF:

  • 42% discount to March 2022 NAV
  • Price target of Rs 134 apiece
  • Expanding equity risk premium
  • NAV discount expansion and tight liquidity
  • Slower pace of sales for unsold inventory
  • Execution delay of 1 million square feet per annum

Shares of DLF gained as much as 5.5% to Rs 197.5 apiece. The stock has gained for the third straight day. Of the 18 analysts tracking DLF, 15 have a ‘buy’ rating and three suggest a ‘sell’. The average of Bloomberg consensus 12-month price target implies an upside of 5.9%.

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