Godrej Properties had moderating sales at Rs 8.2 bn, compared to quarterly sales of Rs 11.3 bn clocked in FY2018. Cash collection remained strong, even as cash flows were supported by Rs 10 bn of equity raise during the quarter. During the quarter, GPL launched four new projects that accounted for the bulk of the sale activity, even as the team prepares to launch nine more projects during the current fiscal. Strong launch pipeline and improving cash generation are already factored in the rich valuations. Maintain Sell with TP of Rs 400/share.
Sales momentum moderated
Collections for 1Q stood at Rs 11.3 bn. Bulk of the sales (64%) were reported from four new launches (of which two projects under DM model) in Mumbai, Pune and Delhi NCR. With total area sold during the quarter at 1.17 mn sq. ft, avg. realisations declined to Rs 6,672/sq. ft. Overall net operating cash flows were negative at Rs 1.6 bn. During the quarter, GPL raised Rs 10 bn selling 5.6% of its stake to GIC. With this equity issuance, the company’s net debt/equity ratio improved to 0.7 (1.9 till March, 2018), providing significant headroom for new business development opportunities.
More launches in pipeline; however GPL’s share continues to remain low
As per the management, nine new term sheets have been signed in this quarter with most of them likely to see launches in this financial year. Of these nine projects signed, three are under the JV/DM model. We highlight that Godrej’s economic interest in JV project format has traditionally remained low.
Lower attributable sales, rich valuations
GPL is recovering operations with the help of favourable project structures, concentrated market approach and strong pre-sales. We expect GPL to continue generating positive cash flow from operations. At 4.3X Mar’20 BV and with 50% of value for new projects and sales estimates running beyond 10 mn sq. ft (modeled from FY2019), GPL continues to be expensive versus sector peers.