Godrej Properties - ADD Project additions in 2HFY11 the key; says IIFL

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Godrej Properties - ADD  Project additions in 2HFY11 the key
• Godrej Properties (GPL) reported muted operating performance in
2QFY11, as rains in Ahmedabad impacted construction progress.
Also, sale volumes dropped 60% QoQ to 0.23m sq ft, as the
company soft-launched only one new project at Mangalore.
• PAT, however, exceeded our expectation, aided by income from
sale of stake in the Woodsman Estate II (Bangalore) project.
• We expect 2HFY11 to be significantly better than 1HFY11 on: 1)
projects in Ahmedabad (Rs1.1bn revenues) and Mangalore
(Rs2.7bn revenues) reaching revenue recognition threshold; and
2) recognition of revenues from new launches in 2HFY11.
• GPL plans to accelerate new launches; it looks to launch 4m–5m
sq ft in Ahmedabad, Chennai, Gurgaon, Kolkata, Hyderabad and
Kochi over the next 3-4 quarters. We expect these launches will
result in cRs13bn sales that would accrue in the next 3-4 years.
• We retain ADD with a target price of Rs705/share, which
represents a 30% premium to our NAV estimate. Acquisition of
several redevelopment projects in Mumbai and deal with Jet
Airway for BKC land are key assumptions for our target price
upside to sustain.
2Q results: Subdued operating performance; profits boosted by
SPV-level stake sale
GPL’s 2QFY11 revenues, down 17% QoQ, came in below our estimate, as
the company’s projects at Ahmedabad—the largest launched since
listing—suffered construction delays because of heavy rainfall. Progress
at Godrej Prakriti, Kolkata, was encouraging; the company sold 0.12m sq
ft in the quarter.
With low-margin sales at Godrej Prakriti dominating revenues (c35% of
overall revenues), 2QFY11 represented the second consecutive quarter of
sub-5% margins.


We retain ADD with a target price of Rs705/share
We roll forward our target price estimate to Rs705/share from
Rs680/share, while factoring in the 0.15m sq ft Chembur project. Our
target price is at a 30% premium to our NAV estimate of Rs543/share,
and factors in NAV upsides from acquisition of redevelopment projects
in Mumbai and the planned Jet Airways deal for BKC. We will monitor
these project acquisitions to determine potential risk to our estimates.