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Cash flows disappoint, debt levels a key monitorable

Godrej Properties (GPL) clocked muted Q1FY24 gross sales bookings of 2.25msf worth INR22.5bn (I-sec estimate of INR24.0bn) and was down 11% YoY in value terms owing to delay in a few planned launches. While the company retains guidance for INR140bn of FY24 gross sales bookings driven by a launch pipeline of ~19msf for rest of FY24, operating cash surplus for Q1FY24 were weak at INR1.2bn. Further, with heavy land spend of INR16bn during the quarter, net debt levels rose by a similar level QoQ to INR53.0bn as of Jun’23. While the company may continue to impress on gross sales bookings with a large launch pipeline in H2FY24, the company would continue to incur land spend for ongoing and new projects. While we retain our target price of INR1,318 based on 1.5x FY23 NAV, we downgrade our rating to SELL from HOLD post the 25% rise in the stock price over the last three months. Key risks to our rating are better than expected cash flow generation and rise in property prices across India.

Muted quarter, legacy project issues a key monitorable

GPL clocked muted Q1FY24 gross sales bookings of 2.25msf worth INR22.5bn (down 11% YoY in value terms) owing to delay in a few planned launches. The company retains guidance for INR140bn of FY24 gross sales bookings (I-sec estimate of INR147bn) driven by a launch pipeline of ~19msf for rest of FY24 of which majority will be in H2FY24. While the company delivered 4.9msf during the quarter leading to strong revenue recognition of INR9.4bn, the company has taken a one-time provision of INR1.6bn relating to Godrej Summit in Gurugram in other expenses leading to an EBITDA loss of INR1.5bn for the quarter. The issue relating to the Summit project which was completed in CY17-18 pertains to a quality issue discovered in the project and the company has offered to buy back units from customers and may also file claims against contractors for the same. Operating cash surplus for Q1FY24 were weak at INR1.2bn. Further, with heavy land spend of INR16bn during the quarter, net debt levels rose by a similar level QoQ to INR53.0bn as of Jun’23.

Business development strong, reining in debt levels key

The company had a strong quarter for business development and had added projects having GDV of INR64.5bn between Apr-Jul’23 consisting mainly in three projects in Golf Course Road, Gurugram having cumulative GDV of INR52.5bn. Q1FY24 business development GDV is 43% of overall FY24 guidance of INR150bn and with more new land parcels in the offing along with payments for upcoming launches (Ashok Vihar, New Delhi pending payments of INR5bn), operating cash flow generation for the company needs to significantly improve going forward to keep debt levels from rising further.

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