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Initiating coverage with a BUY

Godrej Properties Limited is a real estate company with its head office in Mumbai, India. A subsidiary of Godrej Industries Ltd, the company was established in 1990 under the leadership of Adi Godrej. The company is currently developing projects that are estimated to cover more than 89.7 mn sqft

.* Topline surged 63.6% YoY to Rs. 279cr in Q3FY22 led by a steady pickup in demand for homes and office spaces.

* EBITDA improved to Rs. 5cr loss vs. Rs. 54cr loss in Q3FY21. PAT grew 171.4% YoY to Rs. 39cr, aided by higher other income (+33.8% YoY).

* With the effect of omicron wave receding, we believe the impact of the third wave on the economy to be limited. On the backdrop of favorable budget proposals to boost the long-term prospects of real estate sector, we assign a BUY rating on the stock with a target price of Rs. 1,831 based on 5x FY24E adj. book value.

EBITDA on the cusp of a positive figure

Consolidated Q3FY22 revenue registered a solid 63.6% YoY growth to Rs. 279cr (+115.6% QoQ) led by a steady pickup in demand for homes and office spaces, as companies look to gradually move back to offices post pandemic. Gross profit margin improved from 31.1% in Q3FY22 to 34.9% this quarter. As a result, EBITDA improved to Rs. 5cr loss vs Rs. 54cr loss in Q3FY21. PAT rose 171.4% YoY to Rs. 39cr, boosted by higher other income of Rs. 188cr (+33.8% YoY).

Business update for the quarter

Q3FY22 witnessed a total booking volume of 2.22mn sqft worth Rs. 1,541cr (vs. total booking volume of 2.4mn sqft worth Rs. 1,488cr in Q3FY21). On the business development front, the company has added 3 new projects with saleable area ~2.4mn sqft – (i) Sarjapur 5, Bangalore – 100% owned project spread across ~16 acres; offers ~1.5mn sqft of saleable area comprising primarily of residential apartments of various configurations; expected revenue potential of Rs. 900cr. (ii) Connaught Place, NCR – Project is JV with TDI group to develop ultra-luxury residential project in Connaught Place; ~0.13mn sp ft of saleable area primarily comprising of residential apartments; Godrej Properties has economic interest of 10% of revenue as DM fee and 50% of the profit; expected revenue potential of ~Rs. 650cr. (iii) Godrej properties has purchased 20% stake in a company to develop a commercial project along with Godrej Fund Management; Project offers 0.80mn sqft of leasable area.

Key highlights

* 9MFY22 total booking at Rs. 4,613cr and total booking volume at 6.60mn sqft, vs Rs. 4,093cr and 6.64mn sqft, respectively, in 9MFY21.

* In Q3FY22, Godrej Properties delivered ~0.08mn sqft in MMR.

Valuation

Several of the planned launches has slipped into fourth quarter due to delays in regulatory approvals, which implies the fourth quarter to realize maximum profits in the fiscal year. Union Budget proposals indicating a supportive long-term growth of the real estate sector in India, with the government sharply expanding capex target by ~35% will create the opportunity for real estate developers such as Godrej Properties. We hereby assign a BUY rating on the stock with a target price of Rs. 1,831 based on 5x FY24E adj. book value.

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