Sales growth concerns amid second wave cloud Godrej Properties' prospects

Margin trajectory and valuations to limit upsides

Despite its highest ever sales in a quarter and management’s expectations of sales growth in FY22, the stock of Godrej Properties was down 4.6 per cent in trade on Wednesday. Worries that the second wave of the pandemic, multiple lockdowns across states and the economic impact could derail the pace of launches and absorption of India’s second largest developer by market capitalisation led to the stock fall.

Helped by seven launches in the March quarter, the company reported a 77 per cent sequential increase and a 10 per cent growth over the year ago quarter to Rs 2,630 crore. The new launches accounted for 58 per cent of new sales in the quarter. 

Cash collections too were at record levels crossing the Rs 2,000 crore level led by robust booking, strong execution and pending collections. The management expects the current pace of collections to continue going ahead. 

With the equity raise of Rs 3,700 crore in the March quarter, the company has not only strengthened its balance sheet (net cash, no leverage) but is also eyeing new projects in its four core markets of National Capital Region, Mumbai, Pune and Bengaluru over the next couple of years. 

While the company has a healthy launch pipeline of 12.3 million square feet in FY22 and could launch more projects on approval, analysts at Edelweiss Research say that the pandemic will impact the company’s sales velocity in the near term. A recovery is expected in the second half of FY22. 

How all this will reflect in the reported financials is what the street will track. The company reported its fourth straight loss at the operating profit level. Despite the optimistic long term projections, analysts at CLSA are cautious on the margin outlook and believe that pre-sales growth may not translate into commensurate profit growth. 

The street is also not comfortable with valuations. CLSA which has maintained a sell rating points out that valuations at 4 times price to book value is higher than peers which are available at 1.5 to 2 times on the same metric. Investors should await the pace of launches and bookings as well as margin momentum before considering the stock.