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Godrej Properties (GPL) reported 2Q earnings of Rs195M, marginally below
our estimates due to lower than expected revenues. Gross margins (at 23%)
were also subdued due to adverse sales mix; however higher other operating
income (development fee for Nagpur project) provided an offset. On
operational front, pre-sales were down 8% Q/Q due to delay in new launches.
While Sep-Q has been an eventful quarter in terms of new project additions
(8msf added, Jet BKC & Vikhroli agreement signed); we believe these plans
call for a sizeable scale up relative to GPL’s current execution/sales run rate
(~0.6msf). Advances for new projects has resulted in net debt increase of
Rs2.2B during the Q to Rs11.5B (Net D/E- 1.2x, highest in RE sector), which
is expected to increase further over 2H on conclusion of BKC deal (~Rs5B).
Operational performance has been muted –2Q new bookings at Rs2.1B,
though improved by 250% Y/Y from a low base, were down 8% Q/Q.
Overall 1H bookings at Rs4.5B are tracking below expectations due to
delay in new launches. Work completion at 0.6msf albeit improved Q/Q.
Development plan revised for Ahmadabad project, reducing the area to
24msf from 40msf. This was primarily due to change in government policy
& GPL’s strategy to minimize commercial construction (given high capex).
Management commentary was fairly cautious on office space outlook given
weak demand in tier 2 cities. While downward area revisions are significant,
overall project is still sizeable relative to GPL’s current sales run rate.
Vikhroli deal economics- GPL will receive 10% of revenues; while
corresponding cost for sales & marketing would not be more than 2% as per
the company (~80% margin). Management was fairly positive on the
Vikhroli opportunity and its potential value accretion for GPL, however we
believe that overall economics would have been better off as a JDA partner
(which the street was expecting) rather than as development manager.
Equity raising in the offing- GPL’s board approved equity raising plan of
upto Rs7.5B. Equity dilution risk is imminent, in our view, given co’s high
leverage on the back of aggressive project additions done over last year and
incremental funding requirement to secure key assets (BKC project).
Estimate changes– Our Sep-11 PT is revised to Rs570 (vs. Rs605 earlier)
primarily as we factor in new economics for Vikhroli & BKC project. Our
booking assumptions are also lowered by ~10% due to delayed launches.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Godrej Properties (GPL) reported 2Q earnings of Rs195M, marginally below
our estimates due to lower than expected revenues. Gross margins (at 23%)
were also subdued due to adverse sales mix; however higher other operating
income (development fee for Nagpur project) provided an offset. On
operational front, pre-sales were down 8% Q/Q due to delay in new launches.
While Sep-Q has been an eventful quarter in terms of new project additions
(8msf added, Jet BKC & Vikhroli agreement signed); we believe these plans
call for a sizeable scale up relative to GPL’s current execution/sales run rate
(~0.6msf). Advances for new projects has resulted in net debt increase of
Rs2.2B during the Q to Rs11.5B (Net D/E- 1.2x, highest in RE sector), which
is expected to increase further over 2H on conclusion of BKC deal (~Rs5B).
Operational performance has been muted –2Q new bookings at Rs2.1B,
though improved by 250% Y/Y from a low base, were down 8% Q/Q.
Overall 1H bookings at Rs4.5B are tracking below expectations due to
delay in new launches. Work completion at 0.6msf albeit improved Q/Q.
Development plan revised for Ahmadabad project, reducing the area to
24msf from 40msf. This was primarily due to change in government policy
& GPL’s strategy to minimize commercial construction (given high capex).
Management commentary was fairly cautious on office space outlook given
weak demand in tier 2 cities. While downward area revisions are significant,
overall project is still sizeable relative to GPL’s current sales run rate.
Vikhroli deal economics- GPL will receive 10% of revenues; while
corresponding cost for sales & marketing would not be more than 2% as per
the company (~80% margin). Management was fairly positive on the
Vikhroli opportunity and its potential value accretion for GPL, however we
believe that overall economics would have been better off as a JDA partner
(which the street was expecting) rather than as development manager.
Equity raising in the offing- GPL’s board approved equity raising plan of
upto Rs7.5B. Equity dilution risk is imminent, in our view, given co’s high
leverage on the back of aggressive project additions done over last year and
incremental funding requirement to secure key assets (BKC project).
Estimate changes– Our Sep-11 PT is revised to Rs570 (vs. Rs605 earlier)
primarily as we factor in new economics for Vikhroli & BKC project. Our
booking assumptions are also lowered by ~10% due to delayed launches.
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