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History and Business Model
Established in 1991, Godrej Properties which belongs to the Godrej Group is in the
business of real estate development in India. It has presence in 12 cities across
India with 74 million square feet of potential developable area. Its projects span
across residential, commercial and townships developments. GPL has completed
several landmark projects and is currently developing significant projects in twelve
cities across India. GPL has received several recognitions of its processes and
performance which include receiving the ‘Best Business Practices’ award for the
year 2009 and ‘Corporate Governance of the Year, 2008' award from
Accommodation Times.
Financials
For FY11, total income stood at Rs 559 crore an increase of 43% YoY. EBITDA
grew by 28% to Rs. 212 crore. Net profit stood at Rs. 131 crore a growth of 7%
YoY. The company has demonstrated significant growth in the volume of sales and
construction progress achieved for the year. GPL’s total bookings for the year in
terms of the area grew by 132% from 1.38 million sq. ft. in FY2010 to 3.2 million sq.
ft. in FY2011.
Growth Drivers
• Established brand name: Godrej Properties is a part of the Godrej group of
companies, which is one of the leading conglomerates in India. The “Godrej”
brand is has strong brand recall in India due to its long presence in the Indian
market, the diversified businesses in which the Godrej group operates and the
trust that it has developed over 112 years of operations.
• Differentiated business model: The Company follows a joint-development
strategy which is not reliant on holding a large land bank. About 85% of the total
developable area to be sold by Godrej Properties comes under the joint
development model. This model involves entering into development agreements
with the owners of land that are typically entitled to a share in the developed
property or revenues/profits arising from the same or a combination of the two.
This unique model has several advantages namely- Land sourcing through joint
development agreement, de-risking strategy which reduces exposure to land
prices, beneficial in economic downturn and provides economic stability to the
business.
• Deal with Godrej & Boyce value accretive: Godrej Properties signed an
agreement in the first week of Q3 FY 12 with Godrej & Boyce to act as
development manager for future developments on its entire Vikhroli land parcel.
This is a highly value accretive deal for GPL as it will add significant and risk
free cash flow through sharing of 10% of revenue and will create tremendous
long term growth for GPL. The low investment requirement will allow GPL to
remain focused on external growth opportunities.
• Repositioning of Godrej Garden City (GGC), Ahmedabad & Godrej Oasis,
Hyderabad to improve development mix: GGC, Ahmedabad was resized and
repositioned as a predominantly residential development as a result of the
change in Government policy and GPL’s accelerated value creation strategy.
The reduced commercial development at GGC will enable GPL to avoid
substantial low-return investment. Godrej Oasis, Hyderabad project is planned
to be changed from commercial to a residential focused development in line with
market demand and GPL’s business model.
Valuations:
At the CMP, the stock trades at PE of 17.8x its FY13E earnings (Bloomberg). We
derive comfort from the strong brand name and unique business model of the
Company.
Technicals
Godrej Properties has been moving along its primary trendline since beginning.
This has ensured smooth upside for the scrip. It has tested above Rs 800 levels
twice. If we consider it under channel then the upside is tremendous as we are
currently at lower band. The risk reward is favorable to initiate longs. The volumes
have been dull during the down fall, which suggest lack of selling.
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