New project sales boost growth prospects of Godrej Properties stock

Godrej Properties had a strong run in 2019, making investors richer by about 45 per cent. The most expensive realty stock has been outperforming its peer index (BSE Realty) since listing. It has gained more than the market during bull phases such as CY17 and CY19, while cutting its losses in CY18 when it lost 6 per cent. 

The outperformance, at least on the operational front, is expected to continue.

The addition of three new projects in Mumbai and one in Bengaluru, with total saleable area of 12.7 million square feet, has boosted growth prospects. These are in the mid-income and affordable housing segments. 

Most of the firm’s projects, to be launched in H2FY20 and FY21 in Mumbai, are in the luxury and premium segment. 

However, the addition of the new projects in micro markets (catering to the affordable/mid-income housing segments) complements the existing portfolio by helping it strike a balance between volume and profitability in the Mumbai Metropolitan Region, says Adhidev Chattopadhyay of ICICI Securities.

Volumes over the last four quarters have been healthy, with average sales of 2.5 million sq ft as compared to 1.2 million sq ft in preceding quarters. Much of the boost came from the sale of 3.7 million sq ft in the March 2019 quarter. Even as the sector has been struggling with sales, the company has been expanding across its key markets of NCR, Mumbai, Bengaluru and Pune.

Over the last couple of years, it has achieved new sales of Rs 5,000 crore annually, with average volumes in the 24-31 million sq ft range. 

It has a target of growing its sales at an average rate of 20 over the next three years, based on joint ventures and acquisitions. 

While analysts at Morgan Stanley believe the company’s strong brand and asset-light business model provide operational ramp-up visibility through new project acquisitions and quick sell-through of the same, these positives have been priced in. 

The company is now trading at a premium  of 4 per cent to its net asset value, compared to the sector’s 33 per cent valuation discount on this metric.