New launch demand after a muted Q1 fires up Godrej Properties stock

Valuations, however, factor in the demand uptick

The Godrej Properties stock has gained about 35 per cent in four trading sessions hitting its all time highs in the process. The stock is the biggest gainer among realty stocks over the last month rising 49 per cent as compared to the Nifty Realty gains of 34 per cent.  

Strong demand for new launches has led to a rally in real estate stocks with the organised players benefitting from market share gains and expanding their portfolios. Further, rate cuts by home finance companies are also expected to spur demand during the festival season adding to sales volumes of developers.

The near-term trigger has been the company’s announcement that its Godrej Woods project in Noida, UP achieved sales of Rs 575 crore in one day post the launch of the project’s second phase. The company has sold 340 homes with an area of more than half a million square feet on the first day of launch. Total sales in the project over the last six months have crossed Rs 1,100 crore.  

Strong demand from new launches was a key trigger for the stock given the muted performance in the June quarter (Q1). In Q1, the stock had achieved gross sales bookings of Rs 500 crore which was down 68 per cent over the year ago quarter and 88 per cent lower on a sequential basis. The dip in sales was due to the impact of the Second Wave. The management had indicated a pick up in sales with four to five launches in the September quarter--- two each in National Capital Region (NCR) and one each in Bengaluru and Pune.


 

Despite the sales miss in the June quarter, ICICI Securities expects the company to hit Rs 7,220 crore of sales bookings in FY22 which is 7 per cent higher y-o-y. The sales, according to Adhidev Chattopadhyay of ICICI Securities, would be on the back of 21 launches in FY22 spread over 13.3 million square feet and excludes Bandra/Worli projects in Mumbai. He expects the company to clock annual sales bookings of over Rs 10,000 crore each in FY23/24 subject to launch of high value projects in Mumbai Metropolitan Region (Bandra/Worli) and NCR (Ashok Vihar).

Given the launch pipeline, its sizeable presence across key markets and ongoing consolidation, analysts believe that the company will be among key beneficiaries in the realty space.

Samar Sarda of Axis Capital says that Godrej Properties has stood out, benefitting the most out of industry consolidation and aggressive growth strategy adopted by it. Its aggressive expansion in various markets have led to market share gain in these markets. Giving an example, he cites the case of Pune where the company’s gross sales has grown from 0.1 mn square feet in FY13 (with its first residential launch) to 2.7 mn square feet in FY21. The Pune market is now the largest gross sales contributor to the developer’s operations with its market share at 4 per cent.

While near-term sales volumes should remain strong, valuations are at a 100 per cent premium to its net asset value and price to book at over 6 times post the recent run up. Investors should await a correction before considering the stock.