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Strong show on pre-sales and healthy cash flows

Pre-sales doubled YoY driven by new launches

* Godrej Properties (GPL) reported bookings of INR50b in 2QFY24, up 109%/133% YoY/QoQ (27% above our estimate). Sales volume surged 93%/133% YoY/QoQ to 5.24msf. Blended realizations improved 8% YoY but declined 4% sequentially to INR9,600/sft due to relatively higher contribution from the plotted projects, which have lower realizations.

* Unlike 1QFY24, pre-sales during the quarter were largely driven by new phases/project launches, which generated 80% of total sales. The company launched seven new projects/phases with combined saleable area of ~5msf.

* GPL has indicated a launch pipeline of ~22msf for FY24 of which 6msf have been launched in 1HFY24. Management reiterated its guidance to exceed INR140b pre-sales in FY24. We expect GPL to clock bookings of INR150b.

* Revenue jumped 108% YoY to INR3.4b vs. our estimate of INR2.2b fueled by higher-than-expected project recognition. It reported an operating loss of INR0.7b. PAT grew 8% YoY to INR726m aided by other income of INR2.6b.

Healthy OCF; debt continues to inch up due to BD activity

* GPL reported gross collections of INR26.5b, up 19% YoY/QoQ each. The spending on construction & overheads increased 24% YoY, leading to an OCF of INR5.6b (up 4% YoY) during the quarter.

* GPL spent INR14b on land and approvals, leading to a deficit of INR8.7b. The company raised INR27b of NCD leading to an increase in gross debt to INR102b vs. INR76b in 1QFY24. GPL had a cash balance of INR41b in 2QFY24 (vs. INR23b in 1QFY24).

* Net debt was at INR61b with a net D/E of 0.65x; management reiterated its guidance of keeping the ratio between 0.5x and 1.0x in the near term.

Key highlights from the management commentary

* Demand for housing continues to grow, with favorable microeconomic indicators and a continued preference for large developers. GPL’s most important priority is to launch all the recently acquired projects, which will accelerate its bookings and earnings growth trajectories.

* Business development: Given the significant progress made on BD in the last few quarters, the focus has shifted to execution as the company is confident of achieving its near-term growth targets with projects already in the portfolio. It plans to enter the Hyderabad market soon.

* Launches of key projects: A few recently acquired projects like Sector 49 Gurugran, Raj Kapoor Bungalow, Mahalunge (premium phase), Ananda (Bengaluru) are front-ended (launching sooner than expected). It has made an encouraging progress on approvals for Ashok Vihar, and now only 3-4 approvals are yet to be received. Management is moderately confident on launching it in 4QFY24, but the company will surely achieve the sales guidance irrespective of the status of individual projects.

Valuation and view

* GPL has achieved 52% of its annual pre-sales target, and given the strong launch pipeline of 16msf in 2HFY24, it can comfortably exceed its guidance for FY24. ? Management intends to launch the recently acquired projects on priority, which would accelerate the booking growth and enable higher cash flow given the favorable ownership of new projects.

* Sustained traction in BD continues to provide strong visibility on pre-sales growth. Further, improvement in profitability led by higher completions of projects with favorable ownership augurs well for the stock. We roll forward our estimates and reiterate our BUY rating with an increased TP of INR2,015 (implying 17% upside).

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