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Revenue booking remains muted, EBITDA margin expands: Godrej Properties (GPL) reported lower than expected
numbers for 3QFY11. While revenue declined 44% YoY to Rs482m, reported PAT declined 13% YoY to Rs329m. EBITDA
declined ~90% YoY to Rs65m; EBITDA margin expanded from 4.4% in 2QFY11 and 3.2% in 1QFY11 to 13.5%. The
improvement in EBITDA margin can primarily be attributed to revenue booking from higher-margin projects in Bangalore,
and commercial projects in Kolkata and Chandigarh. The management has hinted at strong revenue booking in 4QFY11
due to contribution from additional projects.
Volume up due to new launches: During 3QFY11, GPL launched four residential projects and one commercial project.
It achieved strong momentum in sales, primarily due to its new launches. It sold ~0.83msf of area (v/s 0.24msf during
2QFY11). Its total booking as at 9MFY11 was 1.6msf. The management has guided new launches at Kochi, Mumbai and
Hyderabad over the next 12 months.
Net DER up to 0.78x: As at December 2010, GPL's gross debt increased to Rs8.7b, while net debt stood at Rs6.6b. The
increase in debt is primarily attributable to steady traction in execution across key projects. During 3QFY11, its net DER
jumped to 0.78x (v/s 0.66x for 2QFY11), while the average borrowing cost was up to 9.7% in 3QFY11 (v/s 9.45% in
2QFY11).
Downgrading FY11E EPS to Rs16.3; FY12E NAV to Rs686: Due to delay in monetization of some key projects, we are
revising our FY11 EPS estimate to Rs16.3 (v/s Rs20.5 earlier). We have rolled over our NAV estimate to FY13 at Rs777,
while our FY12E NAV is revised to Rs686. We expect GPL to trade at premium to NAV due to its strong growth visibility,
asset-light model and brand equity. GPL currently trades at 23% discount to option-adjusted FY13E NAV. It is valued at
3.5x FY12E BV of Rs170 and 14.9x FY12E EPS of Rs39.5. Maintain Neutral with one-year forward target price of Rs700
(10% discount to FY13E NAV).
Revenue booking remains muted, EBITDA margin expands
GPL reported lower than estimated numbers for 3QFY11. While revenue declined
44% YoY to Rs482m, reported PAT declined 13% YoY to Rs329m. Its 9MFY11 numbers
fall well short of our full-year estimates: (a) 9M revenue was Rs1.2b (v/s FY11 estimate
of Rs4.2b) and (b) 9M PAT was Rs709m (v/s FY11 estimate of Rs1.5b).
The key projects contributing to revenue are: (1) Garden City Phase-I, Ahmedabad
(Rs130m), (2) Prakriti Phase-I, Kolkata (Rs166m), (3) Riverside, Kalyan (Rs108.4m),
(4) Genesis, commercial project at Kolkata (Rs55m), (5) Woodman Estate, Bangalore
and (6) Eternia, Chandigarh.
EBITDA declined ~90% YoY to Rs65m; EBITDA margin expanded from 4.4% in
2QFY11 and 3.2% in 1QFY11 to 13.5%. The improvement in EBITDA margin can
primarily be attributed to revenue booking from higher-margin projects in Bangalore,
and commercial projects in Kolkata and Chandigarh.
During 3QFY11, other income was Rs200m v/s Rs90m in 3QFY10 and Rs494m in
2QFY11, including Rs149m towards partial dilution of project level equity stake in:
(a) Godrej Buildwell Private Limited to India Realty Excellence Fund and others for a
consideration of ~Rs50m, and (b) Godrej Sea View Properties Private Limited to
HDFC PMS for a consideration of ~Rs100m.
The management has re-iterated that as a part of GPL's business strategy, it looks to
monetize part of its stake at an early stage of development to accelerate monetization
and also lower its tax burden. While the company has not entered into any new project
level-stake dilution in 3QFY11, a substantial part of its other income comprises the
later tranches of its past dilution.
The management has hinted at strong revenue booking in 4QFY11 due to contribution
from additional projects, where the company has already witnessed robust pre-sales
and which are likely to cross the recognition threshold level of 25% by 4QFY11. The
key projects are: (a) Garden City Phase-II and III, (b) Prakriti (20% completed), (c)
Frontier, Gurgaon (7% completed), (d) Palm Groves, Chennai (5% completed), etc.
Volume up due to new launches
During 3QFY11, GPL launched four residential projects: (1) Godrej Frontier, Gurgaon
(1.04msf), (2) Godrej Palm Groves, Chennai (1.1msf), (3) Phase-II of Godrej Prakriti,
Kolkata (0.66msf), and (4) Phase-III of Godrej Garden City, Ahmedabad (0.73msf),
and (5) one commercial project: Godrej Genesis, Kolkata.
It achieved strong momentum in sales, primarily due to its new launches. It sold
~0.83msf of area (v/s 0.24msf during 2QFY11). Its total booking as at 9MFY11 was
1.6msf.
The management has guided new launches at Kochi, Mumbai (Chembur) and
Hyderabad over the next 12 months.
Steady progress in execution
The company has witnessed steady traction in construction for all of its ongoing projects.
Many of its projects are approaching the completion hurdle of 25% and would start
contributing substantially to revenue in the forthcoming periods.
The management has also guided commencement of construction of its commercial
project in Vikhroli, Mumbai during 4QFY11 and possible completion over the next 24
months.
Net DER up to 0.78x
As at December 2010, GPL's gross debt increased to Rs8.7b, while net debt stood at
Rs6.6b. The increase in debt is primarily attributable to steady traction in execution across
key projects. During 3QFY11, its net DER jumped to 0.78x (v/s 0.66x for 2QFY11), while
the average borrowing cost was up to 9.7% in 3QFY11 (v/s 9.45% in 2QFY11). However,
interest cost remained low due almost full capitalization of interest in its joint-development
projects.
Key takeaways from conference call
During 3QFY11, the key projects contributing to revenue are: (1) Garden City Phase-
I, Ahmedabad (Rs130m), (2) Prakriti Phase-I, Kolkata (Rs166m), (3) Riverside,
Kalyan (Rs108.4m), (4) Genesis, commercial project at Kolkata (Rs55m), (5)
Woodman Estate, Bangalore and (6) Eternia, Chandigarh.
The management has hinted at strong revenue booking in 4QFY11 (similar to
4QFY10) due to contribution from additional projects, where the company has already
witnessed robust pre-sales and which are likely to cross the recognition threshold
level.
It plans to start the construction for Phase-I of its commercial project in Vikhroli,
Mumbai during 4QFY11, while new launches at Kochi, Chembur (Mumbai) and
Hyderabad are likely to happen over the next 12 months, with Chembur and Kochi
likely to be launched during 1QFY12.
Sales at Garden City Phase-III are robust, with ~0.6msf booked during 4QFY11.
Expect net DER(x) to increase further on account of construction capex in ongoing
projects.
Downgrading FY11E EPS to Rs16.3; FY12E NAV to Rs686
Due to delay in monetization of some key projects, we are revising our FY11 EPS
estimate to Rs16.3 (v/s Rs20.5 earlier). We have rolled over our NAV estimate to
FY13 at Rs777, while our FY12E NAV is revised to Rs686.
We expect GPL to trade at premium to NAV due to its strong growth visibility, assetlight
model and brand equity. GPL currently trades at 23% discount to option-adjusted
FY13E NAV. It is valued at 3.5x FY12E BV of Rs170 and 14.9x FY12E EPS of
Rs39.5.
Going forward, the key catalysts that could further re-rate GPL are: (i) traction on
disclosed MoUs, (ii) visibility on development of other group land bank (particularly at
Vikhroli), and (iii) continued momentum on new third party JDAs. Maintain Neutral
with one-year forward target price of Rs700 (10% discount to FY13E NAV).
Godrej Properties: an investment profile
Company description
Godrej Properties Limited (GPL), established in 1991, is
part of the 113-year-old Godrej group of companies. GPL,
which develops residential and commercial properties,
recently entered large township development. The company
expanded its footprint into 10 key tier-1 and tier-2 cities,
with a land bank of 391 acres and developable area of
~83msf, where it has economic interest for ~50msf.
Key investment positives
Focused mid-income housing play with an asset-light
model: Unlike industry peers, GPL's development
portfolio is skewed in favor of JDA projects.
Leveraging on the Godrej brand: We believe the widely
recognized Godrej brand gives GPL the unique strength
to emerge as a true pan-India player.
GPL entered into MoUs with group companies to
develop ~185acres, which offers huge option value.
Key challenges
Higher inclination towards joint-development model caps
gains during an economic upswing and exposes the
company to the potential risk of operational conflicts
with JD partners.
Heavy dependence (~16% of GAV) on Ahmedabad real
estate market can hamper GPL's growth prospects in
case of a downturn and an extreme economic situation.
Key news flows / triggers to watch
Going forward, the key catalysts that could re-rate GPL
are: (i) traction on disclosed MoUs, (ii) visibility on
development of Vikhroli) and (iii) continued momentum
on new third party JDAs.
GPL management indicated that they are in the process
to finalize a deal with Jet Airways to develop ~2.5msf
at BKC, Mumbai, which could add 4-5% to its GAV.
Valuation and view
We have rolled over our NAV estimate for the company
to FY13 at Rs777, while our FY12E NAV is revised to
Rs686.
We expect GPL to trade at premium to NAV due to its
strong growth visibility, asset-light model and brand
equity. GPL currently trades at 23% discount to optionadjusted
FY13E NAV. It is valued at 3.5x FY12E BV
of Rs170 and 14.9x FY12E EPS of Rs39.5. Maintain
Neutral.
Sector view
The real estate sector seems firmly set on the path to
recovery, following the successful balance sheet
recapitalization by key RE companies, shifting focus
on execution and a pick-up in sales momentum. While
the broad based recovery in residential vertical has been
the key growth driver in last one year, the ongoing revival
in commercial and retail segment is going to strengthen
the sector outlook further in forthcoming years.
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