Recent spurt in business development has taken Godrej Properties’s (GPL) project additions since FY21 to Rs 30,000 crore/30m sf+, 90%+ of which are via the buy-out route. Rising residential prices and low competition for land acquisitions make GPL’s move timely; and projects are likely to boost revenue & margin visibility. The new projects are also complimentary to existing land bank and as such raise medium-term pre-sales growth confidence. The stock looks attractive at near 5-year low PB.
Deal activity surge: Recent acquisitions of large projects in MMR (Kandivali, Rs 7,000 crore) and NCR (Noida, Rs 3,500 crore) have taken FY23 project acquisition gross value to Rs 16,500 crore, 10% ahead of the Rs 15,000 crore guidance. GPL had raised Rs 3,750 crore in FY21. While initial deployment had been slow, recent spurt in acquisition pace makes us expect full deployment (~Rs 15,000-20,000 crore worth more projects) by Mar’24.
Reasonable costs likely as competition low. 92% (by-value) of the Rs 31,100 crore worth of projects acquired since FY21 is via the buy-out route. This marks a strategic shift for GPL which had built-up its project pipeline largely via partnership model over the last decade. We estimate that cost of land acquisitions is still reasonable (20-25% of saleable value for all-in land cost for Noida and Kandivali), which makes potential project margins 30%+. Low competition for land buy-outs has kept costs controlled.
Complementary locations and segments. The project acquisitions since FY21 have focussed on MMR (51% by value) and Bangalore (20%). The two geographies have contributed ~30% to pre-sales in FY22, and management believes the new projects will help to boost sales contribution from these cities. With a rising share of take-rate in new acquisitions, we estimate that GPL’s share of pre-sales, on a blended basis, will rise from ~50% in FY21-22 to ~70% in FY24-25. GPL trades near -1sd 5-year price to book ratio (PB) and below average 10-yr PB -we see a good entry point.