Q1FY24 Review: Godrej Properties: Muted performance; H2FY24 to fare better

3 Aug 2023 , 03:16 PM

Godrej Properties (GPL) reported muted pre-sales for Q1FY24, due to lack of new launches. Net debt witnessed a sharp increase QoQ, driven by muted cashflow generation and elevated land capex. Mgmt reiterated its FY24 guidance across pre-sales, collections, business development and completions; expects the launch momentum and cashflows to fare better in H2. GPL has created a provision in the P&L to fix construction-quality-related issues w.r.t a completed project in Gurgaon. However, a buyback offer has also been rolled out to home buyers, which could potentially increase future liabilities. Analysts of IIFL Capital Services NAV remains largely unchanged, target price of 1,665/share is at 50% premium to NAV. Retain ADD. 

Muted pre-sales; sharp increase in net debt: 

During the quarter, GPL reported pre-sales of Rs22.5bn (down 11% YoY) due to weak launches of 1.1msf. As a result, sustenance sales were >80% of the overall sales. At Rs19.5bn, collections fared better — up 26% YoY. GPL reported operating cashflow margins of ~5.3% (vs 1.2% YoY); mgmt explained this will improve steadily over next 3 quarters. The company reported land capex of Rs15.8bn (new BD, milestone linked payments), and as a result, net debt was up Rs16.5bn QoQ to Rs53bn (0.56x equity). Land capex could be elevated over next 2-3 quarters, resulting in net debt increase during this period. 

FY24 guidance reiterated: 

Over the conference call, GPL re-iterated its FY24 guidance: 1) Pre-sales of Rs140bn (+14.5% YoY). 2) Gross collections of Rs100bn (+11% YoY). 3) Completions of 12.5msf (+20% YoY, spread over the year with Q4 being the highest). 4) Business development of Rs150bn (43% achieved in Q1). Mgmt remained hopeful of launching ~20msf for FY24 as guided; it also shared that progress on key projects like Ashok Vihar, Mahalaxmi, Carmichael Road — is on track. 

Reported profitability hit by one-off costs, ADD: 

GPL reported that it has provided for Rs1.6bn in the P&L for repairs, and customer claims (buyback offered to homebuyers) towards its completed project, Godrej Summit in Gurgaon where they have encountered quality issues. Valuations are not cheap, the stock trades at ~50% premium to NAV (inline with its long term average). Analysts of IIFL Capital Services NAV is largely unchanged, but they see steadily improving outlook across cashflow and P&L profitability.