We see robust operations for Godrej Properties (GPL) going ahead given its new project pipeline, ability to leverage its brand name to augment its project portfolio and geographic diversification. It should benefit from tax incentives for affordable housing, preference for prominent players post. RERA implementation and improved macro environment.
However, at current valuations we see these positives largely priced in and expect limited upside hereon. Hence, we downgrade to ‘Hold’ with a revised FY18E target price of Rs 520 (15% discount to NAV; Rs 450 earlier). Post demonetisation, the GPL stock witnessed a strong rally – up 75% YTD /42% in past 3 months. This we believe was driven by: expected scale up in operations through new launches and strong new sales; new project additions; prospects of balance sheet improvement led by cash flows from sale of balance BKC inventory and legacy commercial assets; strong brand name; and pan-India presence.
Tailwinds in the form of affordable housing initiatives – interest subvention to buyers and tax exemption to developers – and organised players benefitting at the expense of unorganised players post-RERA have further helped the uptick. At current valuations and based on our revised FY18E NAV (Rs 612/share), we believe the GPL stock is pricing in most of these positives resulting in limited upside hereon. We hence downgrade to ‘Hold’.
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nue stood at Rs 4.6 billion (up 19% y-o-y, down 10% q-o-q), driven by POCM-based revenue recognition in Trees project (Rs 2.9 billion; phase 2 hit recognition) and other ongoing projects. EBITDA margin stood at 22% (compressed 200 bps q-o-q). Net profit came in at Rs 624 million versus our estimate of Rs 706 million.
For FY17, revenues fell 24% y-o-y to Rs 17.1 billion, EBITDA jumped 41% y-o-y to Rs 3.8 billion and net profit grew 20% y-o-y to Rs 2.1 billion.
New sales dropped sharply to R3.4 billion (down 45% y-o-y and 51% q-o-q) owing to no new project launches during the quarter. GPL added 3 new projects to its development portfolio measuring 3.5msf. While the sharp demand uptick in key markets, price increase and faster new project additions pose key upside risks, demand slowdown and delays in selling balance commercial inventory are key downside risks. At CMP, the stock trades at 13% discount to our FY18E NAV of Rs 612. We believe the stock is fairly valued and offers limited upside from current levels. We downgrade to ‘Hold/SP’ from ‘Buy/SP’.