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Strong quarter, all eyes on cash flow generation

Godrej Properties (GPL) clocked Q2FY23 gross sales bookings of Rs24.1bn vs. Isec estimate of Rs26.0bn led by four new launches contributing Rs9.0bn or 37% of the quarter’s sales. For H2FY23, GPL has a strong launch pipeline and expects to cross over Rs100bn of FY23E sales bookings (I-sec estimate of Rs126bn) vs. Rs49.3bn achieved in H1FY23. While headline sales numbers may continue to impress, with just Rs7.4bn of operating surplus generated in H1FY23 and fresh land spend of Rs13.8bn, GPL’s net debt has increased by Rs9.0bn in H1FY23 to Rs13.7bn. With significant business development spend along with completions lined up in H2FY23, debt levels are expected to rise further. Post the 14% correction in stock price over the last three months, we upgrade our rating to HOLD from SELL with an unchanged target price of Rs1,215. Key upside risk is rise in residential prices and key downside risk is a rise in mortgage rates.

* Strong H1FY23 sales bookings, on track to cross Rs100bn of annual sales: GPL clocked Q2FY23 gross sales bookings of Rs24.1bn vs. I-sec estimate of Rs26.0bn vs. Rs25.2bn in Q1FY23 with four new launches across Pune, NCR and Bengaluru contributing Rs9.0bn or 37% of the quarter’s sales. With a strong pipeline of launches in H2FY23, including Ashok Vihar, New Delhi in Q4FY23, the company remains confident of exceeding its FY23 sales guidance of over Rs100bn vs. Rs78.6bn achieved in FY22 (I-sec estimate of Rs126bn). While headline sales numbers continue to impress, with just Rs7.4bn of operating surplus generated in H1FY23 and fresh land spend of Rs13.8bn, GPL’s net debt has increased by Rs9.0bn in H1FY23 to Rs13.7bn. With large land acquisitions lined up in H2FY23 (including one large project with potential GDV of Rs50.0bn), operating cash flows will be the key monitorable going forward to keep debt levels in check.

* Business development plans remain aggressive: In FY23 YTD (Apr-Nov’22), the company has added six new projects across 6.3msf of saleable area with an estimated GDV of Rs60.3bn. As per company, FY23 may see overall GDV addition of Rs150bn through business development with a significant focus on the Mumbai Metropolitan Region. While H1FY23 has seen business development happening exclusively through the outright acquisition route, H2FY23 is expected to see a large number of JV projects as well contributing to the project pipeline.

* Single digit price hikes taken to mitigate cost push inflation: To combat cost push inflation, the company has taken further hikes of 2-5% in Q2FY23 (3-4% price hikes in Q1FY23 and 5-7% in Q4FY22). As per the company’s management, recent mortgage rate increased in housing loans by 100-150bps and further expected hikes in FY23 are not expected to hurt demand.

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