Analyst Corner: Godrej Properties – Retain ‘Sell’ with a TP of Rs 772

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Published: February 20, 2020 1:00:03 AM

We retain our 'Sell' rating with a target price of Rs 772/share as we have already assigned a 30% business development premium to our NAV to arrive at our target price.

As per GPL management, the land payment will be staggered over 8 years (FY20-27E) in equal instalments.As per GPL management, the land payment will be staggered over 8 years (FY20-27E) in equal instalments.

Godrej Properties’ (GPL) has acquired a 27-acre land parcel on outright basis in Ashok Vihar, New Delhi from the Railway Land Development Authority (RLDA). Against a reserve price of Rs 12.8 bn, GPL will pay Rs 13.6 bn for the land in a staggered manner over FY20-27E in equal installments. GPL’s share of saleable area is 3.28 msf, which works out to a land cost of Rs 4,143/psf. Assuming a launch price of Rs 15,000/psf, construction cost of Rs 6,000/psf and development in two phase over FY21-29E, we arrive at post-tax project IRR of 23% and NPV of Rs 4.1 bn (Rs 16/share) owing to the staggered land payment for this land. We retain our ‘Sell’ rating with a target price of Rs 772/share as we have already assigned a 30% business development premium to our NAV to arrive at our target price.

As per details available from the RLDA, the Ashok Vihar land is spread over 27 acres. The project has been auctioned on leasehold basis (99-year lease) and includes redevelopment of 135 existing Type I/II railway quarters and units for economically weaker section (EWS) housing. The land has a global FSI of 2.3x (including EWS component) of which GPL’s share of saleable area is 3.28 msf. The reserve price for this land was set at Rs 12.8 bn against which GPL is paying Rs 13.6 bn or Rs 4,143/psf on saleable area basis. As per GPL management, the land payment will be staggered over 8 years (FY20-27E) in equal instalments. With premium residential prices in Ashok Vihar currently hovering ~Rs 15,000/psf, we expect GPL to launch at a similar price and steadily hike prices thereafter.

We assume a H2FY21 launch for the Ashok Vihar project at a selling price of Rs 15,000/psf, construction cost of Rs 6,000/psf (ex-land) and development in two phases over FY21-29E with annual sale price and cost escalation of 5%. We arrive at a pre-tax IRR of 30% for this project and post-tax IRR of 23%. The staggered land payment over an eight-year period from FY20-27E is the key reason for the higher IRRs in this project. Assuming a WACC of 13% to discount cash flows, we arrive at a post-tax NPV of Rs 4.1bn or Rs 16/share for GPL.

GPL has an aggressive pipeline of 7-8 launches lined up in Q4FY20 of which it has already launched high value projects such as RK Studios, Mumbai (0.35msf with revenue potential of over Rs 10 bn) and many projects in NCR and Bengaluru. GPL’s 9MFY20 sales bookings worth Rs 35.3 bn are up 12% y-o-y and we expect GPL to comfortably cross sales bookings of over `20 bn in Q4FY20.

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