Godrej Properties - Vikhroli option - Apparently not worth much ::JPMorgan

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 Announces agreement with Godrej & Boyce for Vikhroli land- GPL
has entered into an agreement with Godrej & Boyce to act as a
development manager for future development of company’s entire
Vikhroli land parcel (large land parcel in prime Mumbai suburb). GPL
will be responsible for conceptualization, design, sales & marketing of
all the phases of the project and will receive 10% of the overall revenues
from the project development as management fee. While the
announcement does provide clarity on the GPL’s economics in the
future Vikhroli development, it limits the role of GPL to development
manager against market expectations of being the JDA partner.
 Potential value accretion from Vikhroli lower than expected – In our
view, value accretion from Vikhroli development as development
manager would be much lower than GPL’s role as a JDA partner (which
the street was expecting). However, it would be ROE accretive given the
cost of construction would be borne by Godrej & Boyce. Note that the
first project (35 acre) is being executed as a JV agreement with 50%
stake implying even higher economics for GPL. Factoring a ~0.6msf of
project launch (residential project also announced today), it would be
earnings accretive by 1.1/share from FY14/15 onwards, on our estimates.
 Under a development manager agreement, we factor in sales and
marketing expense of 5% of revenues (50% margin) which are to be
borne by GPL. This is against the 6-7% S&M to sales ratio reported by
most developers. For JDA agreement, we factor in 40% stake in line with
most of the company’s JDA agreements.