Q4FY23 Review: Godrej Properties: All-round strong performance

4 May 2023 , 12:25 PM

Godrej Properties (GPL) reported strong performance across all parameters; especially on P&L profitability which came in significantly ahead of estimates. GPL has guided to 15% YoY growth in pre sales for FY24, driven by a sharp scale-up in launches. Business development activity could see moderation YoY, with higher focus on adding JV projects vs outright in FY23. While GPL’s focus on growth and improvement in Q4 profitability are positives, the stock trades at ~30% premium to NAV making valuations rich.

Strong beat for Q4 P&L

GPL reported its highest-ever quarterly revenue recognition (for consolidated projects). Reported EBITDA margins at 21% were the highest in over 6 years. The highest-ever quarterly PAT of Rs. 4.7 billion was driven by completions of 7.6msf in Q4. Operationally too, Q4 pre-sales at Rs. 40.5 billion (+25% YoY) was the highest-ever; so was the FY23 pre-sales at Rs. 122 billion, up 56% YoY. GPL reported OCF of Rs. 22.5 billion (margins of 52%) in Q4 but elevated land spends of ~Rs. 20 billion and JV-related adjustments of Rs. 11 billion led to net debt increase of Rs. 10.6 billion QoQ to Rs. 36.5 billion (net debt-to-equity of 0.4x).

Demand outlook healthy

On the concall, management shared that demand outlook remains healthy; though pricing increases so far have been modest, barring some markets like NCR witnessing steep increases. GPL did not share a timeline of reaching its previously stated 20% RoE target, due to an expanded equity base. No equity raise likely in near term, till net debt-to-equity between 0.5-1x.

Healthy guidance for FY24; Valuations not cheap

GPL has guided for FY24 – 1) 15% YoY volume-led pre-sales growth 2) 11% YoY growth in collections 3) ~20% YoY growth in completions to 12.5msf, and 4) Business development target of Rs. 150 billion (versus Rs. 323 billion in FY23). GPL is unlikely to be FCF-positive in FY24, given elevated land spends (and Rs. 5 billion pending land payments from FY23). Analysts at IIFL Capital Services see GPL to report steady improvement across its key parameters; though stock trades at 30% premium to NAV.