DLF Ltd

NSE:DLF

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen. Good day, and welcome to DLF Limited Q1 FY '23 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. [Operator Instructions].

I will now hand the conference over to Mr. Vivek Anand. Thank you, and over to you, Mr. Anand.

[Vivek Anand, executive]

Thank you, and Good morning to all of you, and 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 crores, reflecting a year-on-year increase of 22%. Gross margins continue to operate in the 50% plus range. Quarter 1 margin stood at 53%. EBITDA stood at INR 488 crores. There is a drop in this quarter as the business is in scaling of face and investing for growth. The increase in staff cost is driven by organization scale-up and other expenses driven by business scale-up costs of marketing and brokerage. We follow a policy of fully charging of sales and construction overheads for which the corresponding revenue will be recognized in the future.

Net profit at INR 470 crores, reflecting a 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 impact new sales booking of INR 2,040 crores, 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 crores during the quarter.

Our new product offerings continue to immense strong interest from the market and made a healthy contribution of INR 1,532 crores 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 the structural recovery in the residential segment to continue. We continue to bring newer offerings across multiple segments and geographies. We continue to remain committed towards surplus cash generation from our operations, continues to be a focus area. We generated surplus cash of INR 421 crores during the quarter, which led to further deleveraging and consequently, our net debt at the end of the quarter stood at INR 2,259 crores, one of the lowest levels. I'll now move to the financial highlights for quarter 1 financial year '23, 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 crores as compared to INR 1,041 crores last year, reflecting a 21% year-on-year growth. EBITDA at INR 961 crores, year-on-year growth of 18% and net profit at INR 323 crores, reflecting a year-on-year growth of 60%. Occupiers attendance continues to exhibit steady improvement indicating return to normalcy in the office segment.

Our [indiscernible] 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 up cycle. We remain committed and confident in delivering our business goals. Thank you very much. We now open the floor for Q&A.

[Operator]

Thank you very much. [Operator Instructions]. The first question is from the line of Saurabh Kumar from JPMorgan.

[Saurabh Kumar, analyst]

Thank you, guys. Good to see you on a Saturday afternoon. Sir, I had a few questions. One is effectively on this gross margin. So gross margins at 50% plus are the best in the industry. But when we compare you on EBITDA, the number is 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 for Aakash is, we have seen price increases, Aakash, in Crest feedback is that price has gone to 25,000 to 30,000 in the market. So, Is there any early feedback you have for your golf course extension project because Gurgaon Family seems to be going up in prices? When do you expect to launch it? And what is any early indication on that [indiscernible] And the third is on this INR 900 crores of CapEx in the parent business, the rental for this will be about INR 200-odd crores and which specific projects are these? So that's it for my side. Thank you, sir.

[Vivek Anand, executive]

I'll take the first question. Thank you, for your questions. So let me take the question on the EBITDA. So first of all, as I outlined that we are in a business scaling up phase and we are investing for growth, so as we know that there will always be a delta between the time you scale up and the time you actually recognize the revenue. 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%. We are also committed to really bringing in new products which will continue to enhance our margins. So I'll just give you an example that the DLF City floor, what we've really launched in the last 18 months. So there is INR 3,000 crores of city floors what we've launched. They are all adding up to a margin of 55% plus.

And overall, the new product portfolio, what we've added in the last 18 months are committed to really enhance our margins as we go forward. 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. But 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%.

[Unknown Executive]

Basically, just to elaborate on what Vivek said. I mean, really at 35% is definitely on the rig. 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 7 crores odd crores, which on the current run rate, will be a number closer to 1,000 on a go-forward basis. So I think once this lag between the revenue and cost credit, I think as Vivek mentioned, I think a 35% plus margin should definitely be doable yet again.

[Unknown Executive]

Saurabh, yes. You mentioned about price points, as you're right and where they are today. But that's also a function of a lot of other things that go behind. So not every property there. If you've noticed also in Gurgaon is today demanding that kind of a price point. But also, there's a lot of work that goes behind it. And therefore, we are committed to continuing to make sure that post sales, our service levels and deliveries are at par with what we had committed. So that is also a function of making sure that the price points are stable and sustainable. So 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 have also presented earlier.

So all the products that you mentioned are being worked on. And yes, there is a visibility of launches this year. And we're 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, are aware of what products and the quality of products that we kind of churn out and are spending their time and pitching for our products, and this is across the board are talking about. So we work with most of them. We're hiring a lot of them. So that particular thing is also going on. And as far as Goa 63 and other floors that Vivek also touched upon, so 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 been accepted, and there was a major gap in the unorganized market, I think, which we've gone and plugged. So the DLF floors today are accepted, but are traded. And then, of course, there are the group housing launches that you mentioned and, of course, Goa as well. So we are all thank you. Yes. CapEx on the new products are signaling to 2. One, which are in the books of the DCCDL platform, there, we will continue to invest above between INR 1,200 crores to INR 1,500 crores over the next 3, 4, 5 years. And this includes DLF downtown Gurgaon, DLF downtown in Chennai.

The mall of India Gurgaon [indiscernible]. In addition to that, there are a few projects, both in offices and retail in the on the DLF platform, which include the IT park in Noida, the new mall which in Goa, which we are now named as DLF Avenue Goa and the high seed stocking sectors in Phase 5 in Gurgaon and near Midtown. This, I think, would impair an expenditure of about INR 500-odd crores, INR 400 crores to INR 500 crores per year.

[Saurabh Kumar, analyst]

I just have a few questions on the margin, but I'll come back later.

[Operator]

The next question is from the line of Murtuza Arsiwalla from Kotak Securities.

[Murtuza Arsiwalla, analyst]

Aakash, a question for you. You've had a successful 18 months with the new product launches and about 1 year, 1.5 years ago, you did carve out this INR 35 million square feet. 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 year at it replenish that launch pipeline taking more from the Land Bank?

[Aakash Ohri, executive]

So Murtuza, let me thank, good question. So with regard to launches and how we have kind of mobilized markets, I'm glad you mentioned those 18 months because we've been talking like this. But 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 our outside the company, North India and whatever national. Yet, I think the brand DLF prevail, we got the maximum price. We got the maximum traction and I can't thank enough our investors. So what happened there was that we have land fence 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 and to the levels that we can actually deliver are the persons.

If you see Chennai, we did about almost 40% over what the actual markets there are. You look at Panchkula and TriCity, at one point in time, I still remember 3 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. 2 major product launches are stated there. So 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 quite a lot to go, but we've got another land bank. So everywhere where we are seeing bounce we are seeing the DLF pull and those areas, we are now, in fact, I can't single out even one geography and say that, look, that's not accepting us. Every geography is all article kind of gone and endorsed us.

So I think you will see, but I just want to be cautious here. All I'm saying is that we go by what the business trend that we have given you all. But today, I think there is confidence even within our systems that we will not only move at lightning speed, but also can deliver irrespective of whatever the conditions are and I think that is important to know. So yes, to replenish, we've got enough to every zone like Chennai, we've done one. We're already talking about 2 more. So all that will now continue to happen. Panchkula, we did whatever as to about 1.5 years today, all our launches, as you know, are our new. So 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 get the kind of first, we seize the market, we do our conversations and then we are on. So we will continue to replenish as we go along.

[Unknown Executive]

Murtuza, I kind of reinforce what Aakash said, we do all of this across India. But I mean, make no mistake, our predominant at our focus remains NCR and Gurgaon and we already have lined up and we committed when we met all of you as a few weeks where. The launches that we have in the pipeline here. And 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.

[Operator]

The next question is from the line of Mohit Agrawal from IIFL.

[Mohit Agrawal, analyst]

My first question is, Aakash just wanted to clarify. Did you mention that you're looking at a Phase 5 launch in the second half? Can you just clarify that?

[Aakash Ohri, executive]

No, not for a phase. DLF 5 launch is not second half. That is other projects further down. So not DLF 5. DLF 5, we are doing a very premium launch, which is called the growth, which are the gold standard of floors, if I can call that. And I strongly recommend a lot of you and everybody else to invest because that's the last parcel of I'd say, late development ever that you will see in one of the most premium geographies of the country. So that is something that we will be launching in the next quarter for sure. But if you're referring to housing, that's looking further away. But I think this is going to be a very price catch for whoever can get in.

[Mohit Agrawal, analyst]

Okay. And how big will that be in terms of million square feet?

[Unknown Executive]

[indiscernible] So that is going to be around almost INR 2,700 to about INR 2,000-odd crores. And that is something which is there. But it's going to be very exclusive.

[Mohit Agrawal, analyst]

And what are the time lines for Crest 2 launch? What are your thoughts on that?

[Unknown Executive]

Crest 2 will happen soon. It will happen as we go along. As Saurabh just mentioned, thankfully, you all are now talking about these price points, and I think market has endorsed that. Overall infrastructure also plays a huge role. And then the community, I think what I always believe that what makes places and companies are with people. So this community that the other fires to be created is very aspirational, very thing. So 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 will require that's going to be a big kind of a mammoth job, and it will require that much of detailing and preparation. So not this financial year on, but look forward to it.

[Mohit Agrawal, analyst]

Sure. Coming to -- we have done INR 2,000 crores of presales this quarter, now first quarter, as you know, is typically not the strongest for residential. A couple of months back in the Analyst Meeting we had given a guidance of about INR 8,000 crores. So how do you look at that considering that we have a strong launch pipeline? Do you want to revise that INR 8,000 crore number considering we've done INR 4,000 crore in the first quarter itself, 2,000 in the first quarter, sorry.

[Unknown Executive]

We won't revise anything for now. We will continue to give stay to our guidance. But as you know, I said, yes, in fact, just before the call, I was sharing this data with my colleagues over the last 5 years, quarter 1 performance. So yes, it's definitely very encouraging. But again, we're not getting carried away with anything. There's also headwinds with everything else going in the future with interest rates and all that. So even we'd like to keep the buoyancy on, but still, I think there's always this locking fear. So we always grounded about these things. I think we've got some launches going on. We've got certain things coming. So Q2, I think we'll focus on right now what we have, and we will keep the guidance as is.

[Mohit Agrawal, analyst]

Okay. And my last question is on your cash flow. So see the collections have been at about INR 1,000 crores whereas the sales the sales number has moved up from about last 4 quarters. So 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 2 quarters in the cash flow. So is that the new normal on the overhead?

[Unknown Executive]

Yes. So your first question is on the collection. The collections for this quarter to be precise is around INR 1,000 crores. And we expect, as we scale up this collection number to really move up. So I think in the last call, I had mentioned that last year, we made a total collection of INR 4,400 crores. 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. And on the fixed cost, yes, you are right. The numbers have really moved up in the last 2 quarters.

And that's what I explained. The way to really look at it is that we are investing for growth. And as we are scaling up our business, we need to really do that. And 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. If you remember last year, we had indicated that when we had given a sales guidance of INR 4,000 crores, we had said that our fixed cost will be in the range of INR 550 crores to INR 575 crores. And now since we are really scaling up. We are almost doubling our business. We expect this to really move up. We expect this cost to really move up close to INR 675 crores on an annualized basis.

[Operator]

The next question is from the line of Ritesh had from Motilal Oswal.

[Unknown Analyst]

So firstly, again, on the collections, specifically in Midtown, when do we expect collections from midtown ramping up because I think we are already INR 2,500 crores of sales that we have done, and we are still left with INR 2,200 crores of collection sort of roughly 10% we have collected. What's the trajectory on that?

[Aakash Ohri, executive]

So see, all new projects that we have launched, whether it's Midtown or [indiscernible], I won't say that these are new geographies for us, but there are new challenges. Also, we've got back then almost after a decade in more of these. Logistics on ground, a lot of things that had changed. We had a kind of a sales thing and everything else was a catch-up. And then as far as these things are concerned, I must egress and give you a thing. The adjacent properties are now almost at abating on Midtown of almost INR 26,000 to INR 30,000 per square foot Phase 3 of Capital Green, which was hovering around were about almost 15,000 just about 15 months back.

And now this is what it is. So I see that ramping up now. We have certain logistic issues and all. Also the scale of the business that came in kind of was pretty large and the authorities where there were certain things that even agencies weren't formed I'm talking about the external ones, when you collect those 10% today with RERA, you have those registries to be done. So 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. So therefore, 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. So you will see that now ramping up and going on.

And as these things are, if you've seen, even both projects, they launched at a certain price and they're kind of trading at a certain price today. And they are both very healthy in terms of these transactions. But I think I don't want to speculate there. But right now, you will see that getting better quarter after quarter.

[Vivek Anand, executive]

And just to add to what Aakash said, see, since this payment plan is linked to construction. And as the construction progresses, we are expecting a major milestone to be achieved in October. So coming specifically to your question, you will see collections ramp-up starting quarter 3.

[Unknown Analyst]

Yes. Got it. And you made an interesting comment on Slide 12. That is on industry supply ramping up, the first point on Slide 12, new supply picking up. So can you elaborate on that? What sort of supply that is coming into market? Is there any impact in our plans or our pricing strategy from here on?

[Unknown Executive]

Yes. So overall industry, I see, as I said in the previous question also, I said, as an organization, I think we continue to be cautious about our approach we always have. So there is demand. See, the only thing that we will continue to give our guidance on one thing are the margins and even if there is a compromise on velocity, I think margins can't be compromised at all. So therefore, it's like a chicken and egg always. So the industry products launches, if you see our performance over the last 6 quarters, it has been evenly distributed with new launches, whether it is 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 you will see new products, but in the same line. 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. But what we have mentioned in the next 3 quarters to go, I think we will stick to that right now. There are more new products other than what we've already mentioned are going to come in. But that's enough. We've [indiscernible] floors. We've got commercial, we've got a very healthy. Also the other supply, I feel that markets have to be competitive. When you put things in perspective, only then your values are also seen and appreciated.

Yes, there will be other supply coming in and I would take, I mean, both in Delhi and elsewhere. I think one thing I can definitely say is, let's say, Saurabh mentioned 63 as soon as we announced or even started work there and bought our papers done, the 3 projects already announced to launch. So obviously, it's good because then there are certain price points established. The demand we know. But yes, Delhi also, you will see industry launches you will see 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. So the larger that pool is the better it is. So 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.

[Unknown Analyst]

Yes. Got it. And one last question for Mr. Khattar. So where are we at 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 Slide 27 table about under construction portfolio for retail?

[Sriram Khattar, executive]

Yes. So under construction, let me split it into 2 platforms. One is the DCCDL platform, one is the DLF platform. In the DCCDL platform, our plan for Mall of India, Abhivruddhi international architects, which is Carlsons Artcare, are at a fairly advanced stage. And I think in another 3 months, we should be able to more or less finalize the plans, that 3 may go to 4 or 5 months, but 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 Vasanth Kunj malls is also under an advanced stage of planning and we should close it over the next 2 quarters. On the DLF platform, the construction of what we earlier used to call Parto Plaza, which is not DLF Avenue in Goa is moving full scale. And at the same time, the high street shopping center, which is Summit Plaza in DLF 5 is also moving. We expect both of them to be in the market by mid-to-latter part of calendar '24. And the high street shopping center near Midtown is, we should start construction in the next 2 to 3 months.

[Operator]

The next question is from the line of Sameer Baisiwala from Morgan Stanley.

[Sameer Baisiwala, analyst]

Thank you very much. On your 7.6 million square feet new launch planned for this year, I mean let's confine how much has been done in Q1? What would be the sort of rollout plan. And within that, if you can talk a bit more about 3.3 million square feet of luxury housing?

[Unknown Executive]

So Sameer, let me do this. The guidance that we've given for the product launch for this year is $7.6 million, of which $0.7 million is what we've actually launched in quarter 1. First of all, I would like to say that we are on course to achieve this number. And we have a quarterly build up from now onwards. So next quarter, again, we have launches adding up to almost INR 2,000 crores, which are going to hit the market. In quarter 3, we have close to INR 2,500 crores of launches, which are likely to hit the market. And the last quarter will be again close to anything INR 2,000 crores to INR 2,500 crores.

So in all, it will be almost INR 8,000 crore to INR 8,500 crores of product value which we'll be launching during the year. And specific to your question on premium luxury housing, which is 3.3 million, this is largely, as Aakash talked about, this is floors in DLF 5. Then we have Goa Residential which is going to and Phase 1 of sector 63. Those are the 3 which are sitting in this bucket of premiums for luxury house.

[Sameer Baisiwala, analyst]

Very helpful. And the second question is when we think about the demand outlook in general, what are the risks to it? So if demand is good. It's been good for the last few months across the price point across locations. So how long can this continue? And what are the risks to this?

[Unknown Executive]

So Sameer, basically, risks too, I think it is spent a more macro assets. And the macro is, I mean when we had met or unfortunately what we attain is. But 6 years back, a lot of risks, which look on the interest rate front and macro recession, which still looks slightly farther away, now be slightly closer. I mean, the Indian demand has so far at least still managed to by and large beat as you can see, not only from us, but from all listed developers in this space. But I think clearly, if you're talking about 100-125 basis points increase more in mortgage rates with some recessionary trends. I think it will be nice to say that it will have no short-term impact. What we are all hoping is that the impact will be transitionary it will not have any lasting impact. But a little bit of impact, I'd say, 2 more 50 basis point hikes if they come in the home mortgage rates [indiscernible].

I'm sure it will have some people will start slightly more before for buying in the quarter. Be the price we you see that the in industry has witnessed in the last 4 to 6 quarters, obviously, makes things slightly more-faster to buy than whatever 4 quarters back. So I think it's a dilation. 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 with extremely strong balance sheet, hopefully, extremely strong doing mechanisms.

So I think the challenges that we had in the early 2010s should not be repeated for a large part, but yes, I mean, there is some headwinds for sure, which I think each player any geography will have to navigate.

[Sameer Baisiwala, analyst]

And finally, on DCCDL, a couple of questions. So one is, we are still at 88% occupancy. So how is the pre-leasing environment? And when do you think this goes back to your usual mid-90s? And second is, I know we've talked a fair bit about the REIT formation. But in your mind, in the mind of the 2 owners, what are the pros and cons that's sort of keeping you away so far?

[Unknown Executive]

Yes. So on the we can see levels at 88%, which includes the vacancy level at our SEZ in [indiscernible] -- We plan to go back to the, say, the mid-90s in the next 4-odd quarters. The one bottleneck that had come about was the SEZ where they be picked up by the new unit has slowed down quite a lot. However, with the introduction of the new bill, which is development of enterprises and services are spilled in the monsoon season, we expect the demand in these spaces as the new avatar of IT parts should pick up from Q3 of this financial year. And therefore, the occupancies will start coming down. The issue that has been 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 workspaces that they need because while hiring is going on in the IT sector at a very good clip. We come back to office is lower 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, there the better companies and the captives and GCCs are obviously planning that they will have to cater to the peak requirement that have the requirement of attendance that will take place during the week. And therefore, their requirement of more spaces will be much more plus this densification and having more collaborative spaces and spaces like people that enter will also add to that. One or 2 things, if I would 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 passe now, they are going to gain an A++ 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. And therefore, if you see the plan that we have for offices, we are in the 3 geographic markets where we have opportunities to grow for the next 6 years. And these are basically the Gurgaon market, the Chennai market and the Noida market. And on your question on the REIT, sir, on a slightly lighter tone, frankly, you were far clear on the REIT before the Analyst Day, when a number of analysts came and confuse us whether we should be having said that.

[Sameer Baisiwala, analyst]

I think today, and I mean, we have Navin Kedar, the CFO of the Renfo, who's actually doing the grunt work on there. I think at a stage where if the 2 shareholders press a button, I think in 6 to 8 months, we can get that into the market. I think most of the PO is done in that time. Now the key is what is a good time and what is the good intent. So I think the flows and call same you know better than most of us, frankly, of that given the challenges in terms of the high development potential that Cyber City has, there are obviously inherent differences between this portfolio vis-a-vis the portfolio of the other 2 -- other 3 listed REITs, which have a higher proportion of the rented assets. And in a REIT format, dividends obviously go up, but then obviously, all CapExs have to be net 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. So I think and then there's a macro piece where the initial 110 basis points interest rate hike, we had thought thus put a site spanner in the world, but the fact that the listed REITs have actually performed extremely well in the last few weeks since the entire interested hikes happen. And for the first time, all the funds used to tells that the compressed cap rate has to be GSC plus 50 to 100 basis points we the compressed cap rates or the listed a 6 [indiscernible] something. I think we are more or less prepared in 6 to 8 months, once the 2 shareholders press the button, we can go.

But I think there are inherent flows and forms that I think both shareholders do need to constrain to be fair. I think it's obvious that both shareholders may have different objectives driving the REIT. The fundamental of the leads just stay very strong, including the fact that it gives an opportunity for inorganic expansion as well. We will begin hopefully in a cashless low. But that's where we are or most of the pre-work that has to be done, I think, is done with some clarifications, et cetera, will keep on coming. But I think we are at a stage where the 2 shareholders who are constantly in discussion on this piece. We continue to be at some of the word screens, including some long-cycle work streams like plants and all are underway. So let's see. I mean what this space is all that I can say right now.

[Operator]

The next question is the next question from Biplab Varma from Antique Stockbroking. And the question is, what are the projects, new phases, launched in this quarter?

[Unknown Executive]

So this quarter were the floors. And primarily, if you're talking about the new projects, it was the floors, the new launches. And it's more force of complex commercial project in Gurgaon and floors. And then, of course, there was the other rescue of super luxury and OMT. So this quarter means floors and commercial.

[Operator]

The next question is from the line of Abhinav Sinha from Jefferies.

[Abhinav Sinha, analyst]

So a couple of follow-ups on what we discussed so far. So one, on the rental side, when do we see downtown Gurgaon becoming lease income earning? And similarly, what will be the exit run rate for FY '23 as well as say FY '24, if you can give us some guidance? So that's the first one. The second one is on the DLF debt for cash flows. So good start to the year, but considering the dividend outflow in 2Q, what are we looking for now for the end of the year? I mean do we say below INR 1,000 crores for net debt?

[Unknown Executive]

Okay. So the question on the start of rentals for downtown 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 DP Gurgaon is in the ballpark of INR 18 crores to INR 19 crores a month. In terms of the run rate for DCCDL as a platform, FY '20 for, I think the exit run rate at FY '23 should be about INR 4,400 crores. And 12 months later, it should be about INR 450 crores, INR 4,900 crores.

[Abhinav Sinha, analyst]

Khattar, sir, on FY '24, just to be clear, we don't have another building opening up in the next 12 months after we are done with downturn Gurgaon.

[Sriram Khattar, executive]

Yes. No, we have dumped down Chennai, which is 2.2 million square feet is going to be finished in the middle of next year. So we believe that the rental for that will start in the third quarter of FY '24. If I would 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 prelease them. And our endeavor is the same for Downtown Chennai also, maybe because it's $2.2 million and given the size of the Chennai market, it may be 80% or so, but our energies to see that rental start immediately after the OC comes. And I'm not in the Cyber City portfolio, but I think by the time fiscal 25 is our joint venture with Heiss should also be in as where entirely DLF platform, even the Noida IT park about 800,000, 900,000 of the data center and the IT part, the first building should start giving the rent.

[Abhinav Sinha, analyst]

Okay. And the 2 retail will also start by that time, the Phase 5 when the Goa one?

[Sriram Khattar, executive]

That will start in FY '25 including DLF Avenue in Goa.

[Vivek Anand, executive]

So our collections, you talked about collections. I briefly answered that, that the collections will continue to grow quarter-on-quarter. And 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 '21, which will be coming towards the end of construction cycles, and there will be corresponding collections happening there so on that. With regard to quarter 2, in particular, yes, there will be a dividend outflow during this quarter, but 2/3 of that, as you know, will be funded by DCCDL cash.

[Abhinav Sinha, analyst]

On a net basis, we had close to INR 2,000 crores net debt reduction in second half last year, basically 2Q to 3Q, 4Q combined, do we see that again?

[Unknown Executive]

I think we opened with a net debt of 2,600. And you've seen this quarter, again, we dropped our net debt upwards of INR 400 crores. So right from the beginning, I think 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 would say. Frankly, the net debt number, less basis has now rendered into a relevant number. But I think a lot of you have it programmed in your [indiscernible]. So I think free cash flow is the focus that it us on. And I think the free cash flow will be on fair enough. But net debt of 1,000 at INR 1,125 or INR 98 crore, I think it's really ending into a zone of comparative in significant some interest by standpoint.

[Operator]

The next question is from the line of Kunal Lakhan from CLSA.

[Kunal Lakhan, analyst]

So firstly, just a follow-up on the REIT side. So this is the first time in the last few quarters, you sounded a bit cautious on the intent to do the REIT? especially you highlighted the structural differences between the leads and us. So firstly, I wanted to clarify if there is any disagreement between the 2 partners on the intent to do REIT?

[Unknown Executive]

No, absolutely not.

[Kunal Lakhan, analyst]

No, absolutely not. Sure. Because the concern that you highlighted, right, in terms of like the ready portion versus under construction, we knew that from the start. So just wanted to understand what could be the deal breakers here.

[Unknown Executive]

No, no, no. So they are 2 pieces. You're right. We knew it from the start. We've had a very intense discussion between ourselves, both DLF and with our partners on whether we should change the perimeter of the asset portfolio. And finally, we have agreed that we should go with all assets inside the piece is including the entire development potential. Then obviously, that does create, as you know, a certain pressure on the financial metrics, which the bankers have rightfully highlighted.

And I think we're just working on some of those peaks. So as you know in the current fiscal, the 2 downtowns in Gurgaon will get completed 12 months from now the downtown in Chennai will get completed. And each of these are important completion from a rent yielding versus a development portfolio standpoint. So I think both the sides are clear that we need to move at the time when the macro is most of them use for value maximizaton. Luckily, neither of us needs to do it for liquidity frankly, and definitely the most important piece. So most of us need to ensure that we do at a time when actually we can maximize the value.

[Kunal Lakhan, analyst]

So just to clarify, it's more than the intent, it's more of a timing issue.

[Unknown Executive]

It is a time issue, not an intent issue for sure.

[Kunal Lakhan, analyst]

So that's helpful. And secondly, we have announced 50% higher dividends for last fiscal. And historically, our policy, you never had a formal policy, but rather like an informal policy has been that we have always passed on the dividends that we have received from DCCDL as dividends to the DLF shareholders. But this year, we saw development business scaling up on cash flows as well, which will continue to happen. So would we look at formulating a dividend policy just to give some outlook on to the shareholders? And also, if you can give us some direction on how should we look at dividends going ahead.

[Unknown Executive]

Okay. So right now, we will keep the REIT discussion out of the dividend policy because the REIT will dramatically alter the dividend -- but assuming that the REIT will take us when it will. Our dividend policy is very clear was that you are absolutely correct. For the last few years, it was a Cyber City dividend which was being distributed because It's only now over the last 4 to 6 quarters that the began generating distributable cash flows. And initially, we had the discipline that we wanted to get the net debt under control. And now that we make managed to get that down to almost like a 2,000 number. We felt emboldened enough to start declaring a small token INR 250 crores dividend from the debt for this year.

And hopefully, if the deco cash flows continue to strengthen you, we are focusing on a slight increase in wire of the debt for dividend year-on-year. On the Rentco side, I think it's pretty clear in the scenario that the free cash flow of the Rentco should be distributed between the -- I mean the first chart on the free cash flow is of the CapEx that we can need to incur. And the residual fees part of it goes into dividend. So right now, Cyber City this year has declared 50 crores dividend. And hopefully, that will be sustained, maybe as more and more properties start keep on coming, it will go. And obviously, on the REIT happens, these dynamics and these numbers change.

[Kunal Lakhan, analyst]

Sure. That's again, helpful. And my last question was on -- earlier in your comments, you mentioned that the supply 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 '22, the 7.6 million square feet that we have outlined, any chances that we could upfront these launches?

[Unknown Executive]

I think last year, if you really look at our total launches was 6 million square feet. This year, it's around 7.8 million square feet. So there is an upscaling which has already been considered. Now if you are 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 delivering them on time.

[Kunal Lakhan, analyst]

Sure, sure, sure. Thank you so much and all the best.

[Operator]

The next question is from the line of Saurabh Kumar from JPMorgan.

[Saurabh Kumar, analyst]

Sir, just had a follow-up on this cost fees. So Mr. Tada, I heard you say 35% is target. But the issue is your -- as your sales grow, your operating costs will keep increasing. It's unlikely to come down. So I just want to make sure that how do you -- I mean, what is the target EBITDA or does DLF target EBITDA or just you have a target gross margin range?

[Unknown Executive]

Saurabh, as Vivek and I had both mentioned at the start of the earlier question, we obviously have a target EBITDA, which is the 35% plus leverage. Our costs have gone up. I think and Vivek, you have this near to yet. I think the costs have now begun sort of stabilizing now because that onetime ramp up, please appreciate sort of we were -- I mean 2 years back, we were at INR 2,500 crores sales with the company with like hardly any new projects. And from that, we have suddenly scaled up new geographies, new product sees also supporting the obviously, we get a fee for or supporting the Cyber City CapEx expansion tend all of those things. So I think we are sales.

We don't need sell it, but even the [indiscernible] comp has moved up in that sense. And we see that I think the rate of growth of the overheads and now is now more or less plateauing and what I said was that the margins will hopefully keep on growing because the margins that we today are the company of the products, which are on the sales levels, which are the 3 or 4 years prior. So, I think as the new cycle takes off and sort of begins sketching, hopefully, this ratio will keep on improving.

[Unknown Executive]

Yes. 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 accretive upwards of 50% I gave you an example of city floors, INR 3,000 crores of products which we have launched. They are almost close to a margin of 55%. The one which we are planning in quarter 3 will be close to 60%. So I think very clearly, they are margin accretive. And the other thing what we are really doing is when we are beefing up the organization, the reason, 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, it will help us record our revenues.

So I think it's a combination of all what we are working. Speed of execution will get revenue faster. So I'm able to grow my top line faster. My margins are new products like the hurdle rate of 50% is really going to make sure that I continue to really replenish is part of my existing margin threshold or even higher. And as Mr. Tyagi said, that the cost base has been reset and I think that's not really going to get keep growing from here. So therefore, hopefully, all this will really result, right, in the near future. We will only get the EBITDA of 35% and continue to really improve thereafter.

[Saurabh Kumar, analyst]

Vivek, but if I look at your Slide 9 and 10 of the presentation, the new project gross margin, I mean, you claim INR 1,800 crores of gross margin against sales of INR 4,600 crores on Page 10, the gross works out to nearly more like 40%, not the 50% mark. So I'm sorry to deliver this point, but so what is giving you the confidence that this number kind of saying that.

[Vivek Anand, executive]

I can separately share the detailed product. But I think I gave you a big example, right out of the total INR 4,400 crores of is what we've really done in the past couple of quarters. I'll give you one example, the biggest product, right, which is closed, is at a 55% margin which is almost INR 3,000 crores, almost 65% of that. But I'm happy to share a detailed offline.

[Saurabh Kumar, analyst]

Okay. And just one follow-up question, sir. Historically, in 2012 to 40, we used to have huge cost escalations versus what the budgeted numbers were. Is there anything you have done in this cycle to make sure because inflation is hitting, so basically to manage your budgets better in terms of -- and what's the like-for-like cost increases you've seen in the portfolio versus the January start today? And I'll be as that.

[Vivek Anand, executive]

You'd like to maybe repeat what you just said. So basically, historically, we have seen in DLF, the cost escalations have been very massive, at least in the last decade. So this time around, have you done something better to basically ensure that the cost escalations don't pick, because we're now again entering an inflationary period. And the second is basically what's the like-to-like cost increase you've seen versus budgeted. So today, what's been the experience in the last 6 months?

[Unknown Executive]

Okay. Okay. Understood. So I think on the fixed cost, I think we've been very clear on our guidance. So -- and I think we gave a guidance when our business was INR 4,000 crores. Again, I outlined my guidance on fixed costs when we are scaling up to INR 8,000 crores. 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. So 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.

So there is a review which happens every month in terms of how the construction cost is very moving. And so for all the projects which are live for all the projects which are there in the pipeline. And that gives us only warning in terms of really positioning our pricing for that product. So I think that's something which is very 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's a very high focus on cash. So while there is a hurdle rate for margin, there is a hurdle rate for cash and 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.

[Unknown Executive]

Yes. The one mistake that during the for 12, 14 since I am a survival of that peer as well and which we are not repeating now and we sort of ties into some of the questions raised in the power on upfronting of launches, is it at least definitely on the high rises, we are definitely not going to launch anything if all of our contracts are in place. Designs are done and the good for construction drawings issue. Actually, frankly, Saurabh, so since it's 8 years in time and now the discussion is technically pain. The fact is that a large part of that time both partial on account of inflation, but partial record of the fact that we had maybe launched those products prior to doing the retail cost estimation of where we were. I think that mistake is definitely not happening.

Obviously, the inflation on commodities and all, as Vivek experience at length in the last quarterly call has taken a toll. But the good news is there are no surprises that are happening. So like I mean, every quarter, almost every month, even if the project costs go up by INR 1 crore 25 lakhs, the business leaders [indiscernible] I mean they are on top of it, RK. Everybody is knowing now crore. The surprise element is not there. But yes, I mean, obviously, we can't conform the macro in question, but that is the way. I don't think this discipline, we necessarily had in the 2012 to '14 period. In fact, if I were to also add, we are also further strengthening our project management process. And 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 a year so that we can really closely monitor the execution of the project, the planning of the project, the cost escalations.

As we are scaling up, we are really getting ready how to really handle the scale as we move forward. So one thing that I'd like to add to your point, Saurabh of which I feel we never get any marks fall, is obviously, one is the inflation and all the other finance-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 improve it and to the point that you mentioned, irrespective of what our financial commitments have been to our investors, we have gone back and better the product in its life cycle. So 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. But 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 and then gone back to making them better. And so 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, our investors, I continue to say that, not to us, we may have lost money. But I think that is something that we are hopefully changing. I don't know I mean, financially, yes, everything. But 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 I'd say, you really can't put a finger to it, but that is something that I feel collectively has helped keep that a brand goodwill on top and continue to make us aspirational.

And we've done it on our account. So I think that is one thing also probably, I 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 and also to add to what we have said that every time there is a INR 1.5 crore increase somewhere, it's passed on to me to, so I understand the pain more than any one of you. So trust me.

[Unknown Executive]

Other analyst trends, if I may take the liberty of adding I would request you please go to Slide #26, which again been seeing or some of the softer issues, which probably won'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 business counsel lead platinum-certified portfolio. We have the largest portfolio in wet platinum 0, which is in the area of water, which is, again, the largest portfolio in the world. And recently, we have bought the lead platinum for the city-led communities for DLF Cyber City Gurgaon.

You guys -- most of you have visited it, you know that why is the Cyber City, if it's not a gated community, and it is open right across, and it's really like a small city and we are the first developer-owned community in the world which has got this platinum rating. And I think as we go forward, the steps that we take in the area of safety and sustainability, help us position our products in a better way and also continue to what has now become important in terms of sustainability and carbon neutrality.

[Operator]

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.

[Ashok Tyagi, executive]

So again, thank you all of you for taking your time on this Saturday and joining us for this call. We could have waited thought until Monday, but we rightfully felt that we should do it the day after the results. As you know, in the results and the way 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 ahead. But I think clearly, on the -- I think our basics are now falling into place. The Rentco piece is actually now performing far better was 12 months back when you had the peak of folate vacancy level were dropping. New CapEx are back in play. Retail has had a dramatic turnaround and I think, hopefully, as we keep on reconnecting that to be every quarter low, we will keep you abreast of all the new developments that are happening, including the new launches. And hopefully, you'll continue to enjoy your support. Thank you.

[Operator]

On behalf of DLF Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.