While GPL’s FY20 sales bookings were in line with our estimates, we have cut our FY21-22E sales volume estimates by 30% each to ~9-10msf.
Heading into FY21, we expect the Covid-19 induced slowdown to have a significant impact on GPL’s FY21 sales bookings as project launches and home buying decisions get deferred by 2-3 quarters. However, as seen in prior “Black Swan” events since FY17 such as demonetisation, RERA/GST implementation and NBFC funding slowdown, such events serve to accelerate the pace of consolidation in the Indian residential market. We believe that GPL with its strong execution track record, healthy balance sheet (net debt of `11bn as of December 2019) and counter-cyclical business development strategy will emerge stronger over the medium-term. Hence, we are upgrading our rating on GPL to ‘buy’ from ‘sell’ post-37% correction in stock price over last three months with a revised target price of Rs 721/share (earlier Rs 772), factoring in lower sales volumes of 30% each in FY21-22E and trimming our NAV premium to 25% from 30%.
In Q4FY20, Godrej Properties (GPL) achieved its best ever quarterly gross sales bookings worth Rs 23.8 bn (up 10% y-o-y) and also clocked record annual bookings of Rs 59.2 bn in FY20 (up 11% y-o-y). The record sales bookings for Q4FY20 were driven by six new launches with GPL selling over 3,000 homes with ~500 homes being sold in the second half of March 2020 after the nation-wise lockdown through online channels. Of the overall FY20 sales bookings, 52% of sales were generated from ongoing projects with balance sales coming from 17 new launches. GPL continues to aggressively pursue its counter-cyclical land banking strategy and added 5 new projects in Q4FY20 and 10 new projects in FY20.
While GPL’s FY20 sales bookings were in line with our estimates, we have cut our FY21-22E sales volume estimates by 30% each to ~9-10msf. We have assumed a year’s delay in high-value premium launches such as Bandra (W) and Vikhroli in Mumbai and Ashok Vihar in New Delhi. However, with GPL having a number of affordable/mid-income housing projects across outer MMR, NCR, Pune and Bengaluru, we believe that GPL should regain lost momentum from H2FY21.