After deal cancellation, Q4 launches key driver for Godrej Properties

Godrej Properties had disappointed the Street with muted bookings in Q3.

From its highs on Thursday, the stock of India’s third largest listed realty player Godrej Properties (GPL) slid 15 per cent. The sharp fall came amidst a weak sales performance in the December (Q3FY22) quarter and a stake purchase in DB Realty. While the stock is down substantially, it can recoup some of the losses on Monday given the announcement on Friday evening that GPL will not proceed with the proposed deal with DB Realty.

“After prolonged discussions and taking into consideration the feedback from the stakeholders and minority investors, the Board has decided not to proceed with any further evaluation of potential investment in the equity capital of DB Realty and the Platform,” said the company in a communication to the exchanges.

GPL on Thursday had indicated its intention to buy a 10 per cent stake through warrants in Mumbai-based DB Realty (DBR) for Rs 400 crore. In addition to this, GPL was also planning to invest Rs 300 crore in a 50:50 joint venture (platform) with DBR to undertake projects under slum rehabilitation (slum rehab) and redevelopment projects of the Mumbai Metropolitan Region Development Authority (MMRDA). GPL was looking at projects with a potential sale value of Rs 15,000 crore through the Mumbai platform.  

Instead of a formal arrangement with DBR, the company will now look at the possibility of evaluating projects with DBR on a case-to-case basis which was the recommended course of action by most brokerages. In addition to the objection on entity level investments, brokerages also highlighted the pitfalls of investing in slum rehab projects.

Kunal Lakhan of CLSA pointed out that most slum rehab developers in Mumbai have defaulted in the past with over a third of the 1,550 current projects in trouble. Most of the stuck projects are due to financial constraints while others are languishing on account of approvals, litigation, internal disputes. Also GPL’s slum rehab project in Bandra too is delayed, he points out.

Though this overhang out of the way, the near term outlook will depend on new launches and sales bookings, especially after the Q3 show. The company registered bookings of Rs 1,541 crore, down 40 per cent sequentially and up 4 per cent over the year ago period. The decline was on account of lower number of launches amid delayed approvals. While Q3 bookings were much below Street estimates, the company expects to get back to high growth trajectory with record sales bookings for the current (March) quarter. While the company has grossed bookings of R 4,610 crore thus far in FY22, with 8-9 million square feet to be launched now, it is expected to cross the FY21 bookings of Rs 6,730 crore in the current year. What gives comfort is 90 million square feet of executable pipeline and Rs 4,000 crore of surplus cash, which according to Motilal Oswal Research, should result in scale-up of pre-sales (bookings) and cash flows.

While the stock has corrected quite a bit, investors should await the traction in the launches and pace of sales recovery in the March quarter before considering the stock.