Godrej Properties (August 17, 2015)
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Godrej Properties
Ltd.
(August 17, 2015)
Godrej Properties
Ltd.
BSE Code: 533150 NSE Code: GODREJPROP Reuters Code: GODR.NS Bloomberg Code: GPL:IN Rating CMP (Rs.) Target price (Rs.)
Incorporated in 1990, Godrej properties Ltd. (GPL) is a real estate entity of the Godrej Group. The
company is undertakes construction of Residential and Commercial spaces along with managing
other construction projects as a Development Manager. It follows an asset light model of Joint BUY 319 385
Development Agreements (JDA) whereby it sources land, builds and markets construction units on
Potential Upside ~21%
a revenue or profit sharing basis.
Duration Long Term
Investment Profile Face Value (Rs.) 5
52 week H/L (Rs.) 329.7/220.1
Strong order-book Adj. all time High (Rs.) 815.0
Decline from 52WH (%) 3.2
GPL’s current project portfolio stands at 95msf spanning across 12 Indian cities. With the JDA
Rise from 52WL (%) 44.9
model in place the company’s effective share in the overall revenue is close to ~60% of the
overall portfolio. Residential portfolio stands at 66.4 msf including Godrej Garden City Beta 1.4
Ahmedabad project (18 msf), Mumbai Projects (9 msf) and Bangalore (9 msf). Commercial Mkt. Cap (Rs. Cr) 6,353
portfolio stands at 9 msf. Godrej owns 25% in an investment platform led by APG (Dutch Pension Enterprise value (Rs. Cr) 8,947
Fund manager and real estate investor) and has pursued outright land purchases of 4.2 msf
under this platform. One Year Relative Price Performance
Freeing of cash flows on the back of BKC monetisation 200
With a locked capital employed of Rs. 1,500 Crores and lower sales in Godrej’s prime BKC 100
project, the management has stepped up efforts to monetize the project and intends to reduce 0
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the inventory pile-up by 0.7 msf by the end of FY16. GPL is also in the process of monetizing its
Chandigarh and Kolkata commercial assets. We expect that due to these large scale transactions,
it will be able to reduce its debt, boost its cash flows and improve its RoCE to 8.6% by FY17E. CNX NIFTY GODREJPROP
Godrej Properties
Ltd.
Strong parentage bodes well for the company
GPL benefits immensely by leveraging its parent company Godrej’s brand value as it has been a Fiscal Year Ended
familiar and one of the most reliable brands in India with strong presence in the market for
Y/E FY14A FY15A FY16E FY17E
over 100 years. The brand value brings in reliability and benefits GPL in numerous ways such as
striking deals with PE investors, marketing projects to end consumers, entering into joint Revenue (Rs. Cr) 1,179.2 1,843.1 2,106.4 2,369.7
development agreements, expanding to new cities and markets and preference as a
EBITDA (Rs. Cr) 282.6 257.2 323.5 368.2
development partner for land owners.
Net Profit (Rs.Cr) 159.4 190.9 231.7 264.2
Emerging demographic trends to strengthen market share
EPS (Rs.) 8.0 9.6 11.6 13.3
The demand for housing is surging in the Tier 1 cities due to the large entry of migrants.
Increasing disposable incomes, rapid urbanization, and strong demographics are some of the P/E (x) 25.3 33.3 27.4 24.0
other reasons favoring the mid-income residential market. GPL expects demand from the mid
P/BV (x) 2.3 3.4 2.8 2.6
income residential segment to remain strong as there is significant demand in this category
across the country. EV/EBITDA (x) 19.8 34.8 27.4 24.1
Godrej Properties Ltd ; part of one of the oldest and most reliable companies in India
Shareholding Pattern
Incorporated in 1990, Godrej Properties Ltd. is a part of the Godrej Group of companies
Shareholding Jun’15 Mar’15 Chg,
(subsidiary of Godrej Industries Ltd.), one of the leading conglomerates in India. The company
operates in Construction & Contracting in the real estate sector. Promoters (%) 74.9 74.9 0.0
Currently, the business focuses on residential (apartments, villas and plotted developments), FII (%) 10.3 10.0 0.2
commercial (including corporate office blocks, built-to-suit facilities, technology parks and
DII (%) 1.0 1.2 (0.2)
campuses) and township developments. Its residential portfolio consists of accommodations of
varying sizes. Others (%) 13.9 13.9 0.0
Page2Godrej Properties
Ltd.
The commercial portfolio includes building office space catering to blue-chip Indian and
international companies, IT parks catering to the requirements of IT/ITES companies and retail Revenue Trend
space. Township portfolio includes integrated townships consisting of residential and
commercial developments. Projects are undertaken by the company through in-house teams 2,500.0 2,369.7
and by partnering with companies having domestic and international operations. It is currently
operational in 12 major cities across India including Chandigarh, Gurgaon, Ahmedabad, Kolkata, 2,106.4
Nagpur, Mumbai, Pune, Hyderabad, Mangalore, Bengaluru, Chennai and Kochi. With projects
that span across the country, the company's upcoming development covers over 95 million 2,000.0 1,843.1
square feet (msf). It boasts off a very unique business model of land sourcing. It usually enters
into JVs with other companies, sources land from them and then constructs on a
profit/revenue sharing basis thus keeping its business very asset light and not restraining the
1,500.0
Rs. Crores
cash flows and generating high returns.
1,179.2
Riding High on the ‘Godrej’ brand
GPL’s management remains confident of leveraging the parent company’s brand value as it is 1,000.0
an instantly recognizable brand in India given its strong presence in the market for over 100
years. The brand value brings in reliability and benefits GPL in numerous ways such as entering
into joint development agreements, marketing projects to end consumers, striking deals with
PE investors, expanding to new cities and markets and preference as a development partner 500.0
for land owners.
GPL has recently been appointed as the DM for Godrej & Boyce’s Vikhroli land parcel (with a
total potential of ~500-1,000 acres). It has also signed MoUs with other Godrej group 0.0
companies for land parcels totaling 175 acres located in Bengaluru and Chandigarh. FY14A FY15A FY16E FY17EGodrej Properties
Ltd.
Also, currently it has 17.7 msf of area under this format majorly in Pune (12 msf), Mumbai (4 msf)
and Bangalore (2 msf). We believe that successful execution of these projects will aid the Godrej Properties project portfolio (msf)
company in strengthening its position as a DM and aid in enhancing its portfolio.
Business model based on JDAs
Type Ongoing Forthcoming
The business model which GPL follows is a unique asset light model primarily based on Joint
Development Agreements (JDAs) which is far less risky than the traditional land banking model.
The company leases land from third parties, undertakes construction and then sells the projects.
The agreements are generally based on revenue and profit sharing. The company has been faring Residential 39.5 26.6
well on the back of this model as it helps in accomplishing more number of projects with lesser
amount of capital deployed, diversifying the risk arising from any single project. The JDAs
constitute ~67% of GPL’s total project. Commercial 7.7 1.2
Also, GPL undertakes close to 20% projects as Development Manager (DM). Generally it gets 10%
of the project revenue as the DM fee against which it roughly spends 2% of the project revenue
as incidental costs such as providing brand, marketing and sales services.
DM 2.6 17.7
We expect the company to perform well going forward, given the advantage it earns in terms of
lower locked in costs (~35% lower than the land banking model), lesser approval days for land
acquisitions and minimum upfront investments. We estimate the costs of sales to decline and
expect the company to post a CAGR of 17.5% in the bottom-line by FY17E. Total 49.8 45.6
Strong project pipe-line provides high revenue visibility
GPL’s current project portfolio stands at 95 msf spanning across 12 Indian cities. With the JDA
model in place the company’s effective share in the overall revenue is close to ~60% of the overall
portfolio.Godrej Properties
Ltd.
Residential portfolio stands at 66.4 msf including Godrej Garden City Ahmedabad project 18msf, Return ratios to improve in the coming years
Mumbai Projects 9 msf and Bangalore 9.3 msf. Commercial portfolio of 9 msf includes 3msf in
Mumbai comprising The Trees at Vikhroli (1.8msf) and Godrej BKC (1.2 msf). Besides, it has 1.8 14.0
msf in Kolkata and 2.4msf in Ahmedabad. It has ~18 msf of area under the development 12.3
12.0
management format majorly in Pune (12msf), Mumbai (4msf) and Bangalore (2msf). An
12.0
investment platform led by APG (Dutch Pension Fund manager and real estate investor) is co- 10.5
owned by GPL. The company owns 25% in the platform and through this investment platform 9.9
the investment vehicle has pursued outright land purchases. The platform has acquired 4 10.0
projects till date- Godrej Prime- Mumbai, Godrej Platinum- NCR, Godrej Aria- Gurgaon and
9.6
recent land acquisition from Puravankara in Bangalore. Total area under investment platform is
8.0 8.6
4.2 msf. Strong project portfolio along with increased execution rate of the company looks
7.8
%
favourable for its future earnings.
6.0 7.1
BKC monetization to soothe debt concerns
The commercial real estate segment has capped the cash flows of the company for the past
4.0
several years because the company had a locked in capital employed of Rs. 2,600 Crores and
lower sales, resulting in a total debt pile of Rs. 3,290 Crores in FY15. The management has
stepped up efforts to monetize its prime BKC, Mumbai commercial project; and is expected to 2.0
reduce the inventory pile-up by 0.7 msf by the end of FY16, in order to cope up with this
scenario. This is expected to result in lower debt as BKC project debt alone is Rs. 1,500 Crores.
Monetizing the Chandigarh and Kolkata commercial assets is also in the process of the company 0.0
and it also intends to pay off debt amounting to Rs. 900 Crores by FY17E. We expect that post FY14A FY15A FY16E FY17E
this monetisation, the company will be able to reduce its debt, augment its cash flows and RoE RoCE
improve its RoCE to ~9% by FY17E.Godrej Properties
Ltd.
Increase in execution levels: a key growth enabler Quarterly performance
With the increment in its portfolio, execution remains a key trigger for the company. GPL
800.0 25.0
delivered 3.5 msf in FY15 as compared to 0.9 msf in FY14. The delivery included 2.7 msf of 23.2
residential and 0.8 msf of commercial space across five cities. GPL has increased construction
700.0 23.2
costs viz-a-viz new launches in the wake of ramping up the execution. The construction costs 19.3
20.0
now account for ~50% of the sales value. We expect the company to be able to sustain the
600.0
similar pace of execution going forward too. As a result, management’s ability to prioritize
execution, in-line with portfolio additions is also expected to reduce the delivery time of its 500.0
projects. Moreover, it augurs well for more order inflows. 13.3 13.2 15.0
Rs. Crores
15.9 12.3
400.0
%
Emerging demographic trends to enhance market share 13.7
Real estate is a critical sector for India’s economy due to its large potential for employment 10.0
300.0
9.1
generation, capital attraction and revenue generation for the government. It is one of the
fastest growing sectors contributing about 6% to India’s GDP. The real estate sector witnessed 200.0
7.4
a slowdown in FY15 after witnessing fluctuating business cycles in the last decade, due to 5.0
moderate end user demand, rising inventory and high finance costs. However, despite adverse 100.0
sector dynamics, prices were resilient in most cities and have dropped only in select micro 331.8 294.0 519.3 698.0 237.6
markets. A number of factors are expected to contribute to the growth of housing demand in 0.0 0.0
India. Key among them are rapid urbanisation rates, a decreasing average household size and Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16
easier availability of home loans. The effect of urbanisation rates on housing demand is most
profound in the Tier 1 cities, where a large influx of migrants is causing housing demand to
Revenue EBITDA Margin (%) PAT Margin(%)
surge. We expect the demand from the mid income residential segment to remain strong as
there is significant demand in this category across the country.Godrej Properties
Ltd.
Improved PAT despite falling revenue in Q1FY16
Net revenue declined by 28.4% YoY from Rs. 331.8 Crores in Q1FY15 to Rs. 237.6 Crores in Q1FY16 primarily due to lower revenue recognition in the absence
of any new construction projects undertaken. However, the company registered highest ever sales in a quarter reporting 1.72 msf delivered area in volume
terms and Rs. 1,251 Crores in terms of the booking value. It added two new projects (in Bangalore) with 1.75 msf of saleable area. EBITDA increased
significantly by 24.7% YoY at Rs. 55.2 Crores in Q1FY16. EBITDA margin increased by 990 bps and stood at 23.2% during the quarter. This was achieved
primarily due to 43.6% YoY decline in cost of sales of the company from Rs. 267.6 Crores in Q1FY15 to Rs. 150.9 Crores in Q1FY16. PAT for the quarter under
review was reported at Rs. 55.0 Crores, a 20.6% YoY growth due to higher other income arising from sale of assets. PAT margin stood at 23.2%.
FY15 performance
GPL’s net revenue increased by 56.3% YoY to Rs.1,843.1 Crores in FY15 as a result of increase in the booking area from 2.97 msf in FY14 to 3.88 msf in FY15.
Increase of Booking (pre-sales) value at Rs. 2,681.2 Crores witnessed a 10% rise propelled by higher bookings in Godrej Aria (Gurgaon), Godrej City (Panvel),
Godrej Prana (Pune), Godrej Central (Chembur) and Godrej United (Bengaluru) totaling to Rs. 1,941.3 Crores. The company delivered 3.5 msf in FY15 which
includes 2.7 msf of residential and 0.8 msf of commercial space across five cities. During the year it added 5 new projects to its development portfolio with a
total saleable area of 7.9 msf to be executed over coming years. EBITDA declined by 9.0% YoY to Rs. 257.4 Crores in FY15. EBITDA margins fell by 1000 bps to
14% in FY15. The margin adversity came on the back of increasing costs due to two new project launches. PAT, however increased by 19.7% to Rs. 190.9
Crores in the year due to higher other income and lower tax outgo. PAT Margins stood at 19.7% in FY15 as compared to 15.2% in FY14.
Key Risks
Geographical concentration poses potential downside to the stock as higher spaces on offer can hamper realizations. 22% of the total
portfolio is located in Ahmedabad.
Commercial portfolio is only 9% of the total portfolio but accounts for 70% of the debt.
Real estate markets are susceptible to volatility owing to pricing, demand and oversupply risks along with regulatory uncertainties.Godrej Properties
Balance Sheet (Consolidated) P/L(Consolidated)
Ltd.
Balance Sheet (Consolidated)
Profit & Loss (Consolidated)
Y/E (Rs. Cr) FY14A FY15A FY16E FY17E
Y/E (Rs. Cr) FY14A FY15A FY16E FY17E
Share Capital 99.1 99.7 99.7 99.7
Reserve and surplus 1,694.3 1,747.2 1,932.4 2,150.0 Net Sales 1,179.2 1,843.1 2,106.4 2,369.7
Net Worth 1,793.4 1,846.9 2,032.1 2,249.7
Expenses 896.6 1,585.9 1,782.9 2,001.5
Minority Interest 203.1 227.9 227.9 227.9
EBITDA 282.6 257.2 323.5 368.2
Total Debt 2,429.0 3,289.8 3,151.67 2,998.0
Other Income 75.0 83.5 92.7 102.8
Other non-current liabilities 4.0 6.0 1.5 1.5
Depreciation 5.8 10.0 22.4 33.8
Capital Employed 4,429.5 5,370.6 5,413.2 5,477.2
Fixed Assets 125.5 189.8 310.2 429.7 EBIT 351.9 330.7 393.7 437.2
Net Interest cost 4.5 4.7 5.8 5.4
Net current assets 4,165.0 4,977.7 4,955.3 4,902.5
Profit Before Tax 347.4 326.0 387.9 431.8
Deferred tax 2.2 4.5 (2.4) (4.9) Tax 111.1 90.4 108.6 120.9
Other non-current assets 136.8 198.6 150.0 150.0 Minority Interest 76.9 44.7 47.5 46.6
Capital Deployed 4,429.5 5,370.6 5,413.1 5,477.2 Net Profit 159.4 190.9 231.7 264.2Godrej Properties
Key Ratios (Consolidated)
Ltd.
Key Ratios (Consolidated) Valuation and views
Y/E FY14A FY15A FY16E FY17E GPL is one of the largest players in the construction space
EBITDA Margin (%) 24.0 14.0 15.4 15.5 enjoying benefits of big brand name, cost competitiveness
and a strong launch pipeline. The company’s top-line is
EBIT Margin (%) 29.8 17.9 18.7 18.4 expected to register a CAGR of 13.5% by FY17E. We expect
GPL’s net profit to grow by 17.6% during FY15-FY17E and the
NPM (%) 13.5 10.4 11.0 11.1
RoE and RoCE to stay at 12.3% and 8.6% respectively.
ROCE (%) 9.6 7.1 7.8 8.6
At the current market price (CMP) of Rs. 319.0, the stock
ROE (%) 9.9 10.5 12.0 12.3 trades at a P/B multiple of 2.8x FY16E and 2.6x FY17E. We
recommend ‘BUY’ with a target price of Rs. 385, assigning a
EPS (Rs.) 8.0 9.6 11.6 13.3 forward P/B multiple of 3.1x, which implies a potential
P/E (x) 25.3 33.3 27.4 24.0
upside of ~21% to the CMP from 12 months perspective.
BVPS(Rs.) 90.5 92.6 113.4 124.3
P/BVPS (x) 2.3 3.4 2.8 2.6
EV/EBITDA (x) 19.8 34.8 27.4 24.1You can also read
