Higher number of project launches, new deals positive for Godrej Properties

The gains for Godrej Properties are from new launches, are however, is factored into the price.

The stock of the country’s third largest listed real estate major, Godrej Properties (GPL) is up by 15 per cent since its lows last month. Expectations of a record March quarter, land acquisitions and strong pipeline of launches led to the gains. But despite the stock recovery, investors are sitting on losses; the stock had shed about 45 per cent from its highs in October last year to its lows in March.

Weak trend of pre-sales or bookings, lack of significant new launches over the last 7 quarters due to delay in regulatory approvals, muted quarterly results trend and valuations have weighed on the stock. The Street has also been cautious about GPL’s change of strategy by adding new projects through 100 per cent ownership as opposed to asset-light model which could increase debt levels in the near term. GPL is focusing more on outright land deals, which constitute 95 per cent of the total project area added since FY21 till date.

Over the last few weeks, the company has been adding to its land bank across key markets of Pune, Bangalore and National Capital Region and will launch housing and plotted developments going ahead. The acquisitions include a 9-acre land parcel in Pune’s Pimpri-Chinchwad area, 33 acres in Bannerghatta Road, Bengaluru and a 50 acre land parcel in Sonipat, Haryana. The company has indicated that it will invest $1 billion (Rs 7,600 crore) over the next couple of years on developing new projects.

Higher number of project launches and new deals are positive for the company. Say Pritesh Sheth and Sourabh Gilda of Motilal Oswal Research, “Momentum in business development, which remained muted for 21 months during the Covid-19 pandemic, seems to have finally gathered pace as GPL signed four new projects, with a development potential of about 7 million square feet, over the last three weeks.” The company is slated to report its best ever March quarter performance. The gains come on the back of 5-5.5 million square feet of new launches with sales value at over Rs 3,000 crore. The company has taken a price hike since the start of the quarter which should boost sales and margins.

While there has been a pick up in business development activity, some brokerages have a cautious stance. IIFL Research believes that improvement in profitability will be a key monitorable.

Says Mohit Agrawal of the brokerage, “Despite a strong 4Q performance, we believe that an improvement in operating cash flow margins (15 per cent for 9MFY22) and operating profit margins are critical to the stock performance.” The company has posted a loss at the operating profit level for the last seven quarters excluding the performance of its joint venture projects.

The other factor which could cap upsides for the stock are valuations. While brokerages are bullish about the booking momentum over the next couple of years given the large project pipeline and ongoing project additions, a sharp premium to net asset value despite the recent correction limits gains. At 3.3 times its price to net asset value for its current pipeline, a large part of the growth is already factored in, says Motilal Oswal Research.