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UBS Investment Research
Godrej Properties
Superior quality
Best positioned in corporate governance; a capital-efficient model
We believe Godrej Properties’ (GPL) superior corporate governance, capitalefficient
structure and joint development model (77% of landbank) positions it well
as funding tightens. Furthermore, its strong brand has driven presales growth of
3.2msf in FY11 (1.9msf in FY10). With access to develop the group’s prime land
in Mumbai and other key cities and the group’s proven value creation ability, we
view GPL as a quality mid-cap company.
Operationally doing well
We believe GPL has a relatively insulated business model, and the share price has
outperformed the sector 22% over the past three months. Although leverage
increased in FY11 to 0.85x versus 0.55x in FY10, we are comfortable as its focus
on capital efficiency with healthy pre-sales and execution pick-up in Ahmedabad is
generating healthy cash flows.
Key catalysts
1) Strong new launch pre-sales at NCR, Chennai and townships in Ahmedabad
(Phase IV), Pune; 2) execution pick-up across projects to drive strong earnings
growth; 3) large joint development deals that can create value, particularly in the
re-development space in Mumbai; and 4) improved development visibility on the
group’s land reserves (185 acres, excluding Vikhroli) where an MoU has been
signed.
Valuation: attractive at a 44% discount to NAV; maintain Buy
We believe the embedded value of the option to develop group assets (Rs683) is
inexpensive. Our price target is based on a 30% discount to NAV, which factors in
the risk of slower progress in new project wins and the development visibility of
the group’s assets.
Godrej Properties
Godrej Properties Limited (GPL) is the real estate development arm of the
Godrej Group. Godrej Industries Limited, the parent company, owns 69.43% of
the equity capital in GPL. The company focuses on residential, commercial and
integrated township developments. GPL has completed 16 residential and seven
commercial projects, aggregating 5.13msf since its incorporation in 1990.
Statement of Risk
We believe key risks for real estate companies include a prolonged higher
interest rate environment (one+year), higher mortgage rates impacting consumer
affordability, slower annual GDP growth of <7% impacting demand for
residential and commercial properties, changes in foreign direct investment
regulations impacting capital availability for the sector, changes in regulatory
policies impacting commercial viability of development, and inflation impacting
consumer affordability.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Godrej Properties
Superior quality
Best positioned in corporate governance; a capital-efficient model
We believe Godrej Properties’ (GPL) superior corporate governance, capitalefficient
structure and joint development model (77% of landbank) positions it well
as funding tightens. Furthermore, its strong brand has driven presales growth of
3.2msf in FY11 (1.9msf in FY10). With access to develop the group’s prime land
in Mumbai and other key cities and the group’s proven value creation ability, we
view GPL as a quality mid-cap company.
Operationally doing well
We believe GPL has a relatively insulated business model, and the share price has
outperformed the sector 22% over the past three months. Although leverage
increased in FY11 to 0.85x versus 0.55x in FY10, we are comfortable as its focus
on capital efficiency with healthy pre-sales and execution pick-up in Ahmedabad is
generating healthy cash flows.
Key catalysts
1) Strong new launch pre-sales at NCR, Chennai and townships in Ahmedabad
(Phase IV), Pune; 2) execution pick-up across projects to drive strong earnings
growth; 3) large joint development deals that can create value, particularly in the
re-development space in Mumbai; and 4) improved development visibility on the
group’s land reserves (185 acres, excluding Vikhroli) where an MoU has been
signed.
Valuation: attractive at a 44% discount to NAV; maintain Buy
We believe the embedded value of the option to develop group assets (Rs683) is
inexpensive. Our price target is based on a 30% discount to NAV, which factors in
the risk of slower progress in new project wins and the development visibility of
the group’s assets.
Godrej Properties
Godrej Properties Limited (GPL) is the real estate development arm of the
Godrej Group. Godrej Industries Limited, the parent company, owns 69.43% of
the equity capital in GPL. The company focuses on residential, commercial and
integrated township developments. GPL has completed 16 residential and seven
commercial projects, aggregating 5.13msf since its incorporation in 1990.
Statement of Risk
We believe key risks for real estate companies include a prolonged higher
interest rate environment (one+year), higher mortgage rates impacting consumer
affordability, slower annual GDP growth of <7% impacting demand for
residential and commercial properties, changes in foreign direct investment
regulations impacting capital availability for the sector, changes in regulatory
policies impacting commercial viability of development, and inflation impacting
consumer affordability.
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