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Godrej Properties (GODR.BO)
Sell Equity Research
Current valuations pricing in high expectations; retain Sell
What's changed
Godrej Properties (GPL) gross debt increased by Rs2.4 bn in FY2011.
4QFY11 saw revenue booking of Rs3.3 bn, which was a sharp increase
from Rs0.48 bn in 3QFY11. Receivables increased to Rs2.9 bn in 4QFY11 as
compared to Rs1 bn as at end-3QFY11 as receipts from customers did not
match revenues booked. Qoq revenue booking in several projects was
high, with GGC-Phase I (36% completed at Dec 2010 to 58% at Mar 2011),
GGC-Phase II (0% to 25%) and Godrej Frontier Phase 1 (7% to 32%)
clocking large completion. Management attributed this sharp increase to
advances towards construction, while receipts are construction linked.
Implications
The increase in debt has led to FY11 ROIC remaining depressed at 14.5%
as compared with 15.6% in FY2010. Total invested capital grew by Rs4 bn
largely due to an increase in current assets. GPL interest expense stayed
low at Rs34 mn vs. average FY2011 debt level of Rs8.3 bn. For GPL,
interest was less than 1% of average debt due to: (1) interest capitalization,
and (2) interest income from loans and advances. GPL had net operating
cash outflow of Rs3.2 bn as compared to Rs4.1 bn in FY2010. We believe
that FY12-13E PAT growth will be constrained by accelerated revenue
booking in 4QFY11, increases in minorities and capitalized interest.
Valuation
While our view on the business model and dividend policy remains
positive, our Sell rating is based on expensive valuations (FY12E P/E of
29X vs. sector P/E of 11X). We lower our 12-m NAV based TP from Rs527
to Rs523 factoring in higher debt. We revise our FY12E/FY13E EPS by -
0.3%/+3.6% adjusting for faster sales recognition. Our FY12E/FY13E EPS is
9%/3% below Bloomberg consensus. We introduce FY14E EPS of Rs47.33.
Key risks
Increase in other operating income on account of sale of stake in SPVs,
new land deals and additional land transactions with Godrej group.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Sell List
Coverage View: Attractive
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Godrej Properties (GODR.BO)
Sell Equity Research
Current valuations pricing in high expectations; retain Sell
What's changed
Godrej Properties (GPL) gross debt increased by Rs2.4 bn in FY2011.
4QFY11 saw revenue booking of Rs3.3 bn, which was a sharp increase
from Rs0.48 bn in 3QFY11. Receivables increased to Rs2.9 bn in 4QFY11 as
compared to Rs1 bn as at end-3QFY11 as receipts from customers did not
match revenues booked. Qoq revenue booking in several projects was
high, with GGC-Phase I (36% completed at Dec 2010 to 58% at Mar 2011),
GGC-Phase II (0% to 25%) and Godrej Frontier Phase 1 (7% to 32%)
clocking large completion. Management attributed this sharp increase to
advances towards construction, while receipts are construction linked.
Implications
The increase in debt has led to FY11 ROIC remaining depressed at 14.5%
as compared with 15.6% in FY2010. Total invested capital grew by Rs4 bn
largely due to an increase in current assets. GPL interest expense stayed
low at Rs34 mn vs. average FY2011 debt level of Rs8.3 bn. For GPL,
interest was less than 1% of average debt due to: (1) interest capitalization,
and (2) interest income from loans and advances. GPL had net operating
cash outflow of Rs3.2 bn as compared to Rs4.1 bn in FY2010. We believe
that FY12-13E PAT growth will be constrained by accelerated revenue
booking in 4QFY11, increases in minorities and capitalized interest.
Valuation
While our view on the business model and dividend policy remains
positive, our Sell rating is based on expensive valuations (FY12E P/E of
29X vs. sector P/E of 11X). We lower our 12-m NAV based TP from Rs527
to Rs523 factoring in higher debt. We revise our FY12E/FY13E EPS by -
0.3%/+3.6% adjusting for faster sales recognition. Our FY12E/FY13E EPS is
9%/3% below Bloomberg consensus. We introduce FY14E EPS of Rs47.33.
Key risks
Increase in other operating income on account of sale of stake in SPVs,
new land deals and additional land transactions with Godrej group.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Sell List
Coverage View: Attractive
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