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Godrej Properties (GPL)
UW: More funds needed
GPL’s recent fund-raising of INR4.7bn seems insufficient,
unless it monetises investments in its BKC commercial project
Small new projects - though fruitful, could exert pressure on
management’s bandwidth in the medium to long term
Reiterate UW and TP of INR490 (unchanged); recent dilution
should reduce near-term investor appetite for GPL
Recent dilution – not enough in our view. GPL’s recent fund-raising of INR4.7bn (we
had anticipated INR8bn; refer to our initiation report dated 8 September 2011 titled “Good
company, but overvalued”) is not enough, in our view. The fund-raising will bring down
net debt to equity only to 1.1x (still the highest amongst its peers), which suggests that the
company will need to raise capital again by FY14. We anticipate GPL to raise additional
equity during FY14 unless it is able to monetise its investment in its Bandra-Kurla
Complex (BKC) commercial project (30% of NAV).
Company could be forced to look at smaller projects. We anticipate the high near-term
leverage will reduce GPL’s ability to take on larger projects. While it is “too early to call
it yet”, a recent example is GPL’s new redevelopment project in Chembur with an implied
value of USD16m (c2% of market cap). While a large brand like “Godrej” should be able
to maximise value on small projects, multiple small projects can exert pressure on
management’s bandwidth and execution in the medium to long term.
Reiterate UW rating with a TP of INR490. Our target price of INR490 (rounded up
from our NAV estimate of INR481) comprises INR415 for its current projects plus INR66
for its Vikhroli land agreement. Our revised NAV estimate of INR481 is marginally lower
from INR489 earlier, as we factor in the recent 11% equity dilution and carry forward the
base to FY13 (from FY12 earlier). While we agree that GPL deserves a premium to its
peers given its stronger ROE and track record, we believe the current premium is
excessive given GPL’s high leverage which can induce further equity dilution.
Revise earnings sharply to account for the outright sales against leasing earlier. Our
60-70% upwards earnings revision for FY13-14e is primarily owing to management’s
recent decision to sell some of its commercial assets to its Group company on an outright
basis against leasing earlier. While the total amount of cashflow realized should remain
largely unchanged, the switch would accelerate the timing of cashflow realisation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Godrej Properties (GPL)
UW: More funds needed
GPL’s recent fund-raising of INR4.7bn seems insufficient,
unless it monetises investments in its BKC commercial project
Small new projects - though fruitful, could exert pressure on
management’s bandwidth in the medium to long term
Reiterate UW and TP of INR490 (unchanged); recent dilution
should reduce near-term investor appetite for GPL
Recent dilution – not enough in our view. GPL’s recent fund-raising of INR4.7bn (we
had anticipated INR8bn; refer to our initiation report dated 8 September 2011 titled “Good
company, but overvalued”) is not enough, in our view. The fund-raising will bring down
net debt to equity only to 1.1x (still the highest amongst its peers), which suggests that the
company will need to raise capital again by FY14. We anticipate GPL to raise additional
equity during FY14 unless it is able to monetise its investment in its Bandra-Kurla
Complex (BKC) commercial project (30% of NAV).
Company could be forced to look at smaller projects. We anticipate the high near-term
leverage will reduce GPL’s ability to take on larger projects. While it is “too early to call
it yet”, a recent example is GPL’s new redevelopment project in Chembur with an implied
value of USD16m (c2% of market cap). While a large brand like “Godrej” should be able
to maximise value on small projects, multiple small projects can exert pressure on
management’s bandwidth and execution in the medium to long term.
Reiterate UW rating with a TP of INR490. Our target price of INR490 (rounded up
from our NAV estimate of INR481) comprises INR415 for its current projects plus INR66
for its Vikhroli land agreement. Our revised NAV estimate of INR481 is marginally lower
from INR489 earlier, as we factor in the recent 11% equity dilution and carry forward the
base to FY13 (from FY12 earlier). While we agree that GPL deserves a premium to its
peers given its stronger ROE and track record, we believe the current premium is
excessive given GPL’s high leverage which can induce further equity dilution.
Revise earnings sharply to account for the outright sales against leasing earlier. Our
60-70% upwards earnings revision for FY13-14e is primarily owing to management’s
recent decision to sell some of its commercial assets to its Group company on an outright
basis against leasing earlier. While the total amount of cashflow realized should remain
largely unchanged, the switch would accelerate the timing of cashflow realisation.
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