Godrej Properties: Marked improvement across all parameters

13 Jul 2023 , 10:49 AM

Recommendation: Add; Target price: Rs 1640

GPL reported an improvement across all the key parameters in FY23 – pre-sales, business development, cashflows and reported profitability; and expects the trend to continue in FY24 as well. Over last 3 years, GPL has been deploying capital towards owned projects, while JV investments have remained flat. FY23 and FY24 new project launches are largely from the owned projects, and this is likely to improve reported profitability steadily as completions rise. Analysts of IIFL Capital Services also do not see material changes to the existing strategy with the new CEO taking over since Jan 2023. Outlook is steadily improving, however valuations are not cheap, retain ADD.

Re-iterates bullish outlook for FY24: 

GPL reported 56% YoY growth in FY23 pre-sales driven by: 1) new launches (+50% YoY, ~50% of sales), and 2) NCR and MMR markets, which contributed ~30 and 25% of sales respectively. For FY24, GPL has guided to 1) pre-sales target of Rs140bn (+14.5% YoY), gross collections of Rs100bn (+11% YoY), completions of 12.5msf (+20% YoY) and business development (GDV addition) of Rs150bn vs Rs323bn in FY23. Although Q1FY24 could be muted due to lack of launches, analysts of IIFL Capital Services expect a sharp pick up in H2FY24.

Profitability improves YoY; re-iterates 20% ROE target: 

GPL reported 35% YoY increase in collections, and doubling of operating cash flows YoY; however sharp increase in land capex drove net debt higher by Rs32bn. On reported earnings, while overall profitability still remains weak, on a YoY basis, GPL’s RoIC on JV investments have improved to 8.5% from 4.5% in FY22. Recognition of owned projects is likely to ramp up FY24 onwards (~15% in FY23), aiding in achieving GPL’s mediumterm RoE target of >20% (re-iterated in the AR).

Valuations not cheap, retain ADD: 

Analysts of IIFL Capital Services see the outlook steadily improving, especially on business development which witnessed a meaningful jump in FY23 to Rs323bn (2.6x FY23 pre-sales). The stock however currently trades at 41% premium to NAV (largely in-line with its long term average). Analysts of IIFL Capital Services upgrade their NAV to reflect the recent project adds, they retain their ADD rating with a revised target price of Rs1640/share.