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Momentum in business development picks up… …But much of it is already factored in

Momentum in business development (BD), which remained muted for 21 months during the COVID-19 pandemic, seems to have finally gathered pace as GPL signed four new projects, with a development potential of ~7msf, over the last three weeks.

With a war chest of INR175b over four years via INR40b of existing cash, INR54b of additional leverage potential, and INR81b of expected operating surplus, the momentum in BD is likely to continue.

The company is expected to deliver record pre-sales in 4QFY22 and FY23, led by an upcoming project pipeline of ~95msf. Overall, we expect the company to report 16% CAGR in pre-sales over FY22-24.

We remain confident on GPL’s ability to deliver robust pre-sales growth and continue its BD momentum. However, At 3.3x P/NAV for its existing project pipeline, much of the growth is already factored in. We maintain our Neutral rating on stock with our unchanged SoTP-based TP of INR1,800, implying a limited (8%) upside potential.

Adds ~7msf across four projects over the last three weeks, momentum in BD to continue

Over the last three weeks, GPL has seen a pick-up in BD activity as it signed four new projects with a saleable area of 7msf and revenue potential of INR44b, which was almost equal to cumulative project additions of INR48b in 2Q and 3QFY22.

On account of the late surge, project additions in FY22 rose to 9msf v/s 6msf in FY21. However, it still continues to be lower than average annual run-rate of ~23msf over FY17-20.

With INR40b of cash as of Dec’21, INR54b of additional room for leverage, and INR81b of operating cash flow generation over the next four years, GPL will have a war chest of INR174b to be deployed on BD activities, thus ensuring the continuation in deal momentum.

Higher share of outright land deals; focus on Bengaluru and the MMR

Prior to FY19, 90% of project additions were under joint venture (JV, 44%) and the development management (DM, 46%) model, which over FY19-20 were largely tilted towards JVs (83%).

After the outbreak of the COVID-19 pandemic, GPL is focusing more on outright land deals, which constitute 95% of the total project area added since FY21 till date.

In line with the management’s strategy to strengthen its project pipeline in the MMR and Bengaluru, it added 13msf of projects in Bengaluru (9msf, 56% of total) and the MMR (4msf, 26% of total) over the last two years.

Expect a record quarter of pre-sales on the back of strong launches

 As per our channel checks, GPL launched seven-to-eight projects/phases, with a saleable area of ~5msf in 4QFY22. Although the latter was lower than the 9msf planned for 4QFY22, it was higher than the 3msf/2msf launched in 2Q/3QFY22.

On the back of strong launches, we expect the company to report INR32b of pre-sales in 4QFY22, which will be its highest ever, breaching the previous record of INR26b reported in 4QFY21.

Launches in 4QFY22 include the launch of a phase in GPL’s successful project in Mahalunge, Pune (Hillside) and Noida (Woods). As per a release to the exchanges, these launches individually contributed ~INR3.5b to pre-sales. Overall, we expect INR20b of pre-sales from launches and the balance from 7.8msf of ongoing inventory.

Launch of key projects in Delhi and the MMR and a project pipeline of ~95msf to drive record pre-sales in FY23

With a project pipeline of ~95msf, we expect the strong launch momentum to continue. We expect launches to increase to 14msf in FY23 from 10msf in FY22.

As indicated in its concall after announcing its 3QFY22 result, the management is confident of launching some of its key projects – Ashok Vihar, Delhi; Wadala, MMR; and Worli, MMR – in FY23, which will drive growth in pre-sales. We expect pre-sales to grow by 23% to INR96b in FY23.

Valuation and view

We are confident of: 1) GPL delivering 16% pre-sales CAGR over next the two-tothree years, given its project pipeline of ~95msf, and 2) strong BD, aided by its existing cash balance and potential to generate surplus operating cash flow. However, at 3.3x P/NAV for its current pipeline, a large part of the growth is already factored in.

Concerns over the GPL’s ability to strengthen its MMR portfolio and generate profit from its historical JVs still loom large. We reiterate our Neutral rating on the stock with an unchanged TP of INR1,800 per share, implying a potential upside of 8%

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