Q2FY23 Review: Godrej Properties: Strong pre-sales; net debt continues to rise

3 Nov 2023 , 01:37 PM

Godrej Properties (GPL) reported strong pre-sales for Q2 driven by healthy new launches. Operating cashflow was also healthy, however it was more than offset by elevated land spends leading to Rs8.7bn increase in net debt QoQ. Mgmt re-iterated its guidance for FY24 across pre-sales, collections and business development and expects steady improvement in operating cashflow hereon. GPL is also looking at building a meaningful annuity income portfolio over time, and would continue to follow a de-risked model. P&L revenue recognition was weak for Q2, and is likely to remain volatile with Q4FY24 witnessing bulk of completions. The stock trades at ~50% premium to NAV, retain ADD rating. 

Strong Q2 pre-sales, healthy OCF margins: 

GPL reported pre-sales of Rs50bn, up 101% YoY driven by 7 new/phase launches; of which Noida launch contributed Rs20bn (40% of pre-sales). The quarter was driven by new launches (~80% of pre-sales), and >50% of pre-sales came from the NCR region, which is witnessing strong demand and pricing tailwinds. While collections lagged pre-sales (due to high share of new launches), OCF margins at 30% were healthy. Elevated land spends more than offset the OCF leading to Rs8.7bn increase in net debt to Rs61.7bn.

On track to achieve FY24 guidance: 

Mgmt sounded confident of achieving FY24 guidance based on H1FY24 performance – across bookings (H1FY24 sales at 52% of FY24 guidance), collections (43%), business development (48%) and deliveries (52%). Launches are expected to accelerate in H2 (H1 at 6.6msf), although some of key projects like Ashok Vihar and Worli could be either in Q4FY24 or pushed into Q1FY25. GPL expects to clock ~20% Cagr in pre-sales over next few years. 

Net debt could keep rising; Valuations not cheap – ADD: 

GPL’s Net debt is up Rs61bn over last 2 years, primarily due to Rs89bn of land spends during this period; which are expected to remain elevated in H2FY24. GPL is also looking at building a meaningful annuity portfolio, it expects to clock gross rental of Rs7.2bn from 4.3msf of projects getting completed in next 6-12 months. The stock currently trades at 50% premium to NAV (higher than long term average).