Analyst corner: Maintain ‘hold’ on Godrej Properties, valuations rich

By: | Published: November 13, 2018 2:05 AM

Given the strong balance sheet (net D/E at 0.7x), GPL is well-positioned to capitalize on industry consolidation that is expected to accelerate in wake of ongoing NBFC liquidity crisis.

While pre-sales were steady in last two quarters at Rs 800 crore each (GPL’s share at ~Rs 400 crore) they were lower than quarterly run-rate of >Rs 10 bn in FY18 – impacted by lower new launches (only 3 in H1FY19 due to delay in approvals).

Given the strong balance sheet (net D/E at 0.7x), GPL is well-positioned to capitalize on industry consolidation that is expected to accelerate in wake of ongoing NBFC liquidity crisis. Management expects significant acquisitions in the coming quarters.
We like the stock from 3-5 years perspective on: (1) continued polarization of demand towards reputed developers, (2) strong new launch pipeline and (3) continued scale-up in business development with higher focus on profitability. However, the valuations remain rich (P/B of 5x vs 1.5-2x for peers). Maintain ‘hold’.

While pre-sales were steady in last two quarters at Rs 800 crore each (GPL’s share at ~Rs 400 crore) they were lower than quarterly run-rate of >Rs 10 bn in FY18 – impacted by lower new launches (only 3 in H1FY19 due to delay in approvals).
However, GPL expects to increase pre-sales run-rate in H2FY19 on improved outlook on new launches.
Operational cash inflow was led by collections of Rs 11.7 bn (Rs 9.5 bn from residential and Rs1.6 bn from commercial), aided by collections from BKC and Hyderabad exit.
Operational cash outflow declined Q-o-Q with lower construction and related outflow of Rs 4.6 bn (vs Rs 5.1 bn in Q1) and other project-related outflow of `2.7 bn (vs Rs 3.5 bn in Q1). Thus, GPL reported an operating cash flow surplus of Rs 3.8 bn (vs Rs 2.8 bn
in Q1). Consequently, net debt declined by Rs 2.5 bn to Rs s 15.3 bn (net D/E now at 0.6x vs 0.7x in Q1FY19) – lower net D/E aided by equity inflow from GIC in the previous quarter despite revision to net worth post Ind-AS 115. Cost of debt remained largely stable at 7.88% (from 7.86% in Q1) – the lowest in the industry.

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