Active land buying by Godrej Properties (GPL) in its key markets may have pushed up the company’s debt levels in the December quarter, analysts have said.
The company has bought several land parcels in the Mumbai Metropolitan Region, NCR and Pune, totalling about 180 acre in the last quarter.
“Unless they buy new land parcels, how will they launch new projects and generate sales?
However, I feel the series of land buys could push up the debt levels of Godrej Properties in the December quarter,” said a stock analyst who didn’t want to be quoted.
The analyst said since the company has given a sales booking target of `10,000 crore for FY23, for the next financial year it would have to give a higher target.
An email sent to the company on the subject did not elicit any response.
“While the headline sales numbers may continue to impress, with just `740 crore of operating surplus generated in H1FY23 and fresh land spend of `1,380 crore, GPL’s net debt has increased by `900 crore in H1FY23 to `1,370 crore,” Adhidev Chattopadhyay, vice-president at ICICI Securities, said in a November 9 report, adding that with significant business development spend along with completions lined up in H2FY23, the debt levels are expected to rise further.
For H2FY23, GPL has a strong launch pipeline and expects to cross over `10,000 crore of FY23E sales bookings (I-Sec estimate of `12,600 crore) vs `4,930 crore achieved in H1FY23, Chattopadhyay said.
The company’s stock has risen 3.6% in the last three months.
However, Mayank Saksena, managing director – land services at Anarock Property Consultants, believes that there are just a few corporate developers present in key markets where Godrej Properties operates and not many are launching new residential properties.
“There is a clear consolidation in the market and Godrej has got the benefit from that. So far, they have done consistent delivery and built good quality products and their properties have seen good appreciation in prices,” Saksena said.
He said north is the best-performing region for the company and they are the second-biggest developer in Pune. “Both NCR and Pune do not have many corporate developers and competition is limited,” he added.
A source in the Godrej group said the company has strong repayment capabilities. The source added that Godrej Properties recently announced that credit rating for commercial paper (CP) limits were enhanced to `1,750 crore from `1,500 crore by rating firms Icra and Crisil.
“Ratings have been reaffirmed/ assigned at [Icra]A1+ and Crisil A1+, respectively. Instruments with these rating are considered to have a very strong degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk,” the company said in a release.
Icra said the improvement in profitability is expected to sustain going forward, supported by the healthy pipeline of projects to be delivered over the near to medium term. The increasing share of interest and service income from joint venture (JV) entities as well as the recent increase in price realisations will also support the profitability. “The company has been steadily building pipeline, aided by capital raised during FY19-FY21, which provides medium-to-long-term revenue visibility,” it added.