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Muted quarter, all eyes on proposed Mumbai platform

Godrej Properties’ (GPL) Q3FY22 gross sales bookings worth Rs15.4bn were well below I-Sec estimate of Rs21.0bn owing to lower sustenance sales of Rs9.1bn. However, with a strong launch pipeline in Q4FY22, GPL appears to be on track to cross FY21 sales bookings of Rs67.3bn. GPL has also announced a proposed investment in DB Realty (DBR, Not Rated) of up to Rs7bn to set up a 50:50 JV platform in Mumbai for slum rehab/redevelopment projects, of which Rs4bn will be at DBR entity level (Rs3bn from this will be reinvested in the JV) and Rs3bn at SPV level. While GPL management expects to add projects having potential sale value of Rs150bn through the Mumbai platform, we are not enthused by the proposed entity level investment in DBR by GPL and believe that this exposes GPL’s shareholders to entity level risks in DBR and greenfield slum rehab projects in Mumbai which are fraught with risks. In our view, direct SPV level investments by GPL after assessing project level viability is the ideal investment route. We retain our SELL rating with an unchanged target price of Rs1,205 at a 60% premium to FY22E NAV of Rs753/share. Key risks to our call are a stronger-thanexpected uptick in GPL’s sales volumes and double-digit residential price growth

All eyes on proposed Mumbai platform investment: In a press release to exchanges, GPL has informed that its Board of Directors has approved a potential investment in DB Realty Ltd. and also the setting up of an SPV along with DBR to jointly undertake slum rehabilitation and MHADA redevelopment projects in Mumbai wherein GPL and DBR will have 50% equity stake in each project with 10% development management fees to GPL. As per the terms of the proposed investment, GPL will subscribe to warrants convertible into equity shares aggregating to ~10% of the issued and paid-up capital of DBR for ~Rs4bn along with promoters of DBR and promoters of Prestige Estates in their personal capacity subscribing to warrants worth ~Rs6bn. As per GPL management, of the Rs4bn to be invested by GPL in DBR at entity level, Rs3bn will be invested by DBR as its share in the SPV with GPL, while GPL will contribute an additional Rs3bn towards the equity platform

Q3FY22 sales bookings muted, Q4FY22 to see bounce back: In Q3FY22, GPL achieved gross sales bookings worth Rs15.4bn, well below I-Sec estimate of Rs21.0bn. This was owing to lower sustenance sales of Rs9.1bn, while three new launches across NCR, MMR and Pune contributed Rs6.2bn of sales bookings. However, the company expects to clock record sales bookings in Q4FY22, resulting in overall FY22 sales bookings crossing the FY21 figure of Rs67.3bn vs. 9MFY22 bookings of Rs46.1bn. With GPL having ~8msf of launches lined up in Q4FY22, it may be able to achieve over Rs25bn of sales bookings in Q4FY22.

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