Published on 19/05/2020 9:30:08 AM | Source: ICICI Securities Ltd

Buy Godrej Properties Ltd For Target Rs. 721 - ICICI Securities

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Godrej Properties (GPL) clocked record quarterly gross sales bookings in Q4FY20 worth Rs23.8bn (up 10% YoY) and also clocked record annual bookings of Rs59.2bn in FY20 (up 11% YoY). Heading into FY21, we expect the COVID-19 induced slowdown to have a significant impact on GPL’s FY21 sales bookings as project launches and home buying decisions get deferred by 2-3 quarters. However, as seen in prior “Black Swan” events since FY17 such as demonetisation, RERA/GST implementation and NBFC funding slowdown, such events serve to accelerate the pace of consolidation in the Indian residential market. We believe that GPL with its strong execution track record, healthy balance sheet (cash reserves of Rs25bn as of March 2020) and counter-cyclical business development strategy will emerge stronger over the medium-term. Hence, we retain our BUY rating with an unchanged target price of Rs721/share.

* Record sales bookings in Q4FY20: In Q4FY20, Godrej Properties (GPL) achieved its best ever quarterly gross sales bookings worth Rs23.8bn (up 10% YoY) and also clocked record annual bookings of Rs59.2bn in FY20 (up 11% YoY). The record sales bookings for Q4FY20 were driven by six new launches with GPL selling over 3,000 homes with ~500 homes being sold in the second half of March 2020 post the nation-wise lockdown through online channels. Of the overall FY20 sales bookings, 52% of sales were generated from ongoing projects with balance sales coming from 17 new launches. GPL continues to aggressively pursue its counter-cyclical land banking strategy and added 5 new projects in Q4FY20 and 10 new projects in FY20.

* FY21-22E sales volumes estimates cut by 30% each: While GPL’s FY20 sales bookings were in line with our estimates, we have cut our FY21-22E sales volume estimates by 30% each to ~9-10msf. We have assumed a year’s delay in high-value premium launches such as Bandra (W) and Vikhroli in Mumbai and Ashok Vihar in New Delhi. However, with GPL having a number of affordable/mid-income housing projects across outer MMR, NCR, Pune and Bengaluru, we believe that GPL should regain lost momentum from H2FY21.

* Strong balance sheet offers room to grow in stressed market: GPL generated strong operating cash surplus of Rs4.8bn in Q4FY20 (Rs7.9bn in FY20) which was negated by interest/tax outgo of Rs1.5bn and land/approval spend of Rs4.5bn leading to net debt levels rising marginally by Rs0.7bn QoQ to Rs11.6bn (net D/E of 0.24x). With Rs25bn of cash and liquid investments as of March 2020, GPL is well positioned to augment its land bank at attractive valuations in a stressed residential market.


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