'Equalweight' on Godrej Properties shares: Morgan Stanley

Sep 26 2013, 09:21 IST
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SummaryGPL continues to build its project portfolio through partnerships and acquisitions.

Godrej Properties Ltd (GPL) continues to build its project portfolio through partnerships and acquisitions. The balance sheet should improve thanks to the recently concluded R700-crore rights issue. However, the sluggish macro climate, gradual ramp-up and full valuations keep us ‘equalweight’ on the stock.

We incorporate new project launches and the acquisition of new projects (joint development/ DM model). We have updated project prices and the execution schedule in line with current market conditions. We have also cut our F14 and F15 EPS estimates by 45% each, driven by slower-than-expected sales at the Ahmedabad and Commercial projects, delay in planned new launches and new revenue recognition guidelines.

We derive our new price target of R407/share by deepening our target discount to NAV to 35%. The change from a 15% target discount is to account for group de-rating (52% discount to NAV) and the current adverse macro climate. This is offset by positives, including quality brand name, prospects for operational scale-up, and strengthening of the balance sheet.

Scale-up in operation is required to unlock value. GPL stock is down 33% YTD (vs 41% drop in Realty Index) and its discount to forward NAV is now 42%. To us, valuations appear full on a P/E basis — 17x for F14e and 13x for F15e (~25% understated due to high interest cost capitalisation).

Morgan Stanley

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