Ashok Tyagi, MD and Sriram Khattar, MD & VC (Rental Business), DLF, in conversation with ET Now.

Tyagi says: “Real estate has been cyclical in the past. Obviously, at some stage, it will be cyclical again. Whether it is seven years or ten years, honestly it is something very speculative. The good news is that today India is in such a wonderful place from an economic and a political stability standpoint that really there at least do not appear to be any internal triggers for a potential downturn of the cycle.”

When I was a kid, I used to come here. There was no road here, it was a jungle. Today, it is a bustling city. High-rises, start-ups. You have made the impossible look easy.
Ashok Tyagi: It has obviously been a very long journey. DLF started 75 years back, soon after partition and developed a lot of Delhi colonies and since early 1980, they began developing Gurgaon and it has been both a labour of love and extreme hard work coupled with extremely strong support from the government. All that led to Gurugram of today.They say that you stand in DLF and can look here, here, and even look up now. Everything belongs to DLF.
Ashok Tyagi: No, no, nothing like that.

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Nothing like that.
Sriram Khattar: No, Ashok is very right. It is really a labour of love. But it also showcases and demonstrates the real spirit of India, the aspiring Indians, the happy Indians, the Indians who know the world, Indians who know their business and the Indians who are now raring to, I dare say, conquer the world.

Real estate is always a cyclical sector. It is believed that the real estate cycle is a seven-year cycle and if one assumes that it started from 2020 or 2021, we are almost midway through that cycle. Is it true?
Ashok Tyagi: It has been cyclical in the past. Obviously, at some stage, it will be cyclical again. Whether it is seven years or ten years, honestly it is something very speculative. The good news is that today India is in such a wonderful place from an economic and a political stability standpoint that really there at least do not appear to be any internal triggers for a potential downturn of the cycle.

Obviously, one can never discount any external factor. But India is today in an extremely strong position locally in terms of its economics, in terms of its policymaking, in terms of political stability. I hope that this cycle continues and sustains longer than the past.

Sriram Khattar: It is difficult to talk of a real estate cycle because real estate is an aggregation of different business verticals. Now, if I talk of the commercial and the retail vertical, the commercial or the offices business as we loosely call it, with the global capability centres (GCCs), finding India a very compelling reason because of the dual competitive advantage of English speaking, highly qualified, hardworking young Indians on one side and global quality real estate at a fraction of cost on the other.

I believe that for the next few years, this will continue to be the trend. In retail, the growth story has just started. Retail grows at a pace faster than the country’s GDP and within retail, organised retail grows even faster. The only thing is that sometimes the western world looks at it from the prism of what is happening in their country and that becomes a little dampening. But other than that, the future looks to be bright.

But the J-curve effect in the real estate sector, especially prices in Gurgaon or Gurugram, some parts there are up more than 100%, that could be largely because between 2010 and 2020 we did not see any appreciation. Things are simply equalising. But have they equalised as per the GDP trend now?
Ashok Tyagi: I do not know whether there is a direct GDP trend or not, but you are right that in the last three years if you see the price, it looks hugely like a J-curve. But if you look at, say, a 10-year cycle, it is actually more moderate and to some degree the market is compensating for the six or seven years of extreme downturn and plateauing that had happened. But clearly, there is optimism in the air. There is no reason why the pricing does not strengthen going forward. Obviously, the pace could moderate. I am not saying that. But right now, we are in a more optimistic scenario, at least for our premium and luxury and super luxury products and that is what one is seeing in the pricing piece also.

Second, at least in the NCR, while the demand has gone up, supply has reduced. There are not as many players today as there were, say, 10 years back. So, there has been a constriction of supply and I will say a shift to more credible players now. So, these credible players are enjoying a price premium which may not have been there had the market been as wide as it was 10 years back.

If I throw in the popular words like work from home, evolution of e-commerce, those are real threats for rental as well as office yields. But that is not affecting your business.
Sriram Khattar: Well, we were quite adversely hit by Covid. But as time has passed, I think work from home is now passe. Most companies are now working on a hybrid model, which is three to four days at work and one or two days from home or wherever else they want to be. But the comeback to office is fairly strong in the Indian context and I do not see this trend reversing. Just to give you some statistics today, Cyber City is about 85% of the attendance of its pre-Covid levels. Chennai Cyber City is at about 90% of pre-Covid levels.

India has definitely crossed that hump of work from home and Covid and it fits into the ecosystem because if you have a nucleus family and you have kids going to school, then the parents find it easy to come out and work rather than work from home.

Real estate development or at least developers till about five years ago did not have a good reputation, before RERA. Now reputation has changed, balance sheet has changed, market cap has changed. It is like magic.
Ashok Tyagi: Magic, I do not know, but you are right. RERA and GST have both led to a fundamental shift in the business practices and in terms of weeding out the developers who could not cope up with the changes. A lot of developers who were there with very big market share 10 years back, no longer are in play now.

When GST and RERA came, for about four, five months, we stopped sales completely. Because we said, let us first attune our internal systems. So, for about five to six months, we actually had zero sales. Once, we were sure that now we can work with the new model, that is when we recommenced. You are right. Obviously 70% of the money being escrowed, etc, there are operating issues. But the fact is, it has led to a far more disciplined life and hence the more credible and the bigger players have prospered.

Also, most bigger players have sort of deleveraged their balance sheet and the way they can approach their business today is far more fearless and yet anchored by great processes courtesy RERA, GST, and their internal systems.

Can I say that DLF now is entering what could be called as a golden phase of its growth? You had to deal with debt. Then, you had to deal with Covid demand. Now, debt is out. You are technically a net cash company and can easily pay your working debt. Demand has come back. For whatever land banks you had and whatever projects you have developed, the pricing is much higher than what you had thought of. So, there is operating leverage, there is price advantage, and if that was not enough, inflation has gone down as well.
Ashok Tyagi: Golden age is a hyper term, but in all fairness, yes, clearly compared to what we were, say, 10 years back, we and the industry, I think the situation today is clearly far more positive, far more energizing. One is launching more, the pricings are far more attractive, the land bank monetisation pace has improved, leverage is gone, internal systems and processes are far stronger. The quality of manpower that we have on the table is far stronger, the rental business is going as strongly as the residential business. Clearly this is one of the better spaces that we have been in, at least the last 15 odd years that I have been in this industry.

In your partnership with GIC, one-third of the rental income goes to them. Why are you giving one-third? Is there a plan that you would say, look, that association eventually after two-three years may not last?
Sriram Khattar: It is not that. You should have to look at it from a different perspective. GIC came in in 2017, when DLF needed a partnership.

But can you buy them back?
Sriram Khattar: They have been very credible partners and we have not had a problem having that. They have been very positively contributing to the ethos and the strategy of the business. Will we want to buy them back? Will they want to sell? All that do not make a difference.

There is no plan on the horizon?
Sriram Khattar: I would not say that there is any plan in the horizon.

What DLF guided for at the beginning of 2024, you managed to achieve that in the first nine months. It is simple math that DLF will beat the guidance. For 2025, when you give your guidance, are you likely to build in more optimism purely looking at your run rate or will you remain conservative and under-commit, over-deliver?
Ashok Tyagi: So, last two years you are right, Traditionally we give the guidance for the next fiscal during the May analyst call which is what we will do this year also. We will be realistic, we have already outlined the launches that we propose to do next year etc. So, it is a question of arithmetic, now obviously we would like to still guide the market to what we definitely believe we can achieve. If the market helps us propel beyond that, it is great. We want to guide to a number which we are 100% sure can be achieved.

When I speak to some of your peers, they say that they are not going to be increasing rates disproportionately. However, they will increase it in line with wage growth in India. It is a debate whether it is 5-6% or 2-3%. What is your sense on the price hike for DLF?
Ashok Tyagi: The residential pricing. I will leave the rental question to Sriram, but the residential pricing will continue looking northwards at least enough to offset inflation so that there is no net dilution in the margins. Depending on the product, the location and the appetite at that time and the market appetite….

But is the appetite strong for residential and rental both can I say that?
Sriram Khattar: At the moment, yes.

Is this the best you have seen in the last five years?
Sriram Khattar: Yes. It is the best in the last five years.

Is it looking good for three years?
Sriram Khattar: It is difficult to say for three years, but for the next six-eight quarters, it is definitely looking good.

Currently, you have got assets which are about 50 million square feet.
Sriram Khattar: Yes, in the commercial business, in the rental business.

Which means the cash flow in coming quarters will only increase?
Sriram Khattar: Yes.

More cash flow means that you will be able to develop more, you will be able to build more.
Sriram Khattar: Yes.

How will this equation change in the next three years for you?
Sriram Khattar: If you see our balance sheet and our profit and loss for the last few years, after meeting the debt obligations and the dividend that is to be given to the two shareholders, the rest of the money goes into growth assets and we have been investing in the ballpark of 1200-1500 crores in growth. In the next three years, we plan to take it up to Rs 1,800-2,200 crore. So, we will continue to invest in growth over the next three years.

I will share the consensus number from brokerages. It is that DLF right now has given visibility of about 32 million square feet, that is about Rs 80,000 crore. Are you likely to change that number looking at the underlying trend?
Ashok Tyagi: Rs 80,000 crore of launches means a humongous square footage to be actually executed on the ground. Frankly, we have identified the launch pipeline for the next four years, which is what this number is. Obviously, we are not saying that the sales of this Rs 80,000 crore will all happen in four years or in five, or in three, that is a question of the market.

But at least the projects which we have identified so far and on which the planning or the pre-planning exercise has kicked off, does show that this is the launch pipeline that we have.

How much land bank does DLF own in the listed entity?
Ashok Tyagi: In the listed entity, we have a land bank excluding cyber city of almost 190 odd million square feet in the last analyst report. Plus there is additional FAR that can be obtained because of the TOD and TDR, etc. I think we have enough land banks for maybe a decade-and-a-half to two decades.

Why have you bought a piece of land recently?
Ashok Tyagi: Sometimes there are micro-geographies where you want to be, where you do not have land. There are some opportunistic pieces that come in. So, this one came in through a distressed banking transaction which made sense for us and we bought it.

Why are you moving outside the comfort zone of DLF, of Gurgaon also?
Ashok Tyagi: We are not necessarily moving out of that.

In Mumbai, you are testing waters.
Ashok Tyagi: Mumbai is the only one which is a new geography. In Goa and Chandigarh, we had the land parcels. We had not monetised them in the down cycle. Now that the cycle is up, we are looking at monetising those frankly. And commercial, Sriram business, we have always had a national presence. You are amongst the biggest in Chennai. We are beginning to rebuild in Hyderabad. We have, obviously, NCR.

What about the unsold inventory? Is there a word called unsold? It was the most commonly used word by everybody a couple of years ago.
Ashok Tyagi: Yes, four years back, we had about Rs 15,000 crore of unsold inventory. The number may be under 2,000 now and in that sense, frankly because most of the new launches are selling almost instantly. If at all, there are some smaller unsold areas in some old commercial complexes or maybe some development in Lucknow or Indore, but by and large, right now we are in a zone where inventory is getting sold.

Every time I have been to this part of India, the development surprises me. If I come in the next three years, what are the surprises I should expect?
Ashok Tyagi: The road network in Gurgaon will dramatically be uplifted by then. I mean, there is already a Southern Peripheral Road, there is a Northern Peripheral Road, there is a Central Peripheral Road that is coming up, the connectivity to the airport, the new metro line.

Mumbai itself, as you know, is going through a dramatic infrastructural upgrade but in Gurgaon also, you would see a significantly improved infrastructure. We ourselves invested a lot in infrastructure in terms of the Golf Course Road that we built. We worked with the government on the metro line, the rapid metro. We believe that till the infrastructure is up to the mark, sustainable value for both office goers and residential players does not really come in.

The math here is that if you grow the rental income and the residential income, if they both funnel together, operating leverage kicks in, which means that in the next five years, DLF should double both in terms of profit?
Ashok Tyagi: That is a fair possibility.

The rental income is growing and there is no slowdown whatsoever. In fact, for the next three years, you see a crystal clear visibility.
Sriram Khattar: Crystal clear is too sort of optimistic a statement in a way but cautious optimism for not seeing any hindrance to growth is there.


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