Buy Godrej Properties Ltd For Target Rs.2,200 by Motilal Oswal Financial Services Ltd
Strong launch pipeline to support 2HFY27 performance BD continues in 2Q; launch pipeline remains healthy
Godrej Properties (GPL) added one new project in Marine Lines, MMR, offering a GDV potential of INR60b. Overall, in 1HFY27, it added INR155b GDV, including INR90b from group housing projects in NCR and INR5b of plotted development in Chennai, apart from the addition in 2Q. With these projects, GPL has already achieved 78% of its annual BD guidance of INR200b. It launched new projects with INR55b GDV in 2QFY27 (INR160b in 1H), and the planned pipeline of INR320b launches in 2H would fuel pre-sales growth in the coming quarters.
Sustenance sales drives in-line 2Q; we maintain our estimates
In 2QFY27, pre-sales declined 6% YoY to INR80b, but were in line. Since some of the launches slipped to 3QFY27, the 2Q performance was driven by sustenance sales, which contributed 63% of the quarterly bookings. Regionally, NCR and MMR drove the 2Q bookings, each accounting for a 24% share and together contributing INR38.3b to the quarterly pre-sales. These were followed by Bengaluru (INR15.6b; 20% share), Pune (INR9.8b; 12%) and Hyderabad (INR7.8b; 10%). Other regions contributed to 11% of pre-sales (INR8.6b). Given the healthy launch pipeline and sustenance inventory, GPL remains confident of meeting its INR390b pre-sales guidance in FY27 (+14% YoY). We maintain our expectation of a 10% CAGR in pre-sales to INR413b during FY26-28E.
Targets INR200-210b of cumulative NOCF in FY27-28
Collections rose 31% YoY to INR53b, 16% higher than our estimate, while operating cash flow stood at INR15.8b during the quarter. The company has guided cumulative collections of ~INR547b and INR200-210b of OCF over FY27- 28, of which it has already collected INR96.7b. This collection translated into an OCF of INR19.8 as of 1HFY27. Based on the pre-sales growth and progress in execution, we expect collections to post a 17% CAGR, reaching INR274b during FY26-28E. Net debt rose INR2.7b QoQ to INR79b in 2Q, while net D/E remained comfortable at 0.41x. We expect net debt of INR84b/INR75b in FY27/FY28.
Financials
In 2QFY27, GPL’s revenue surged 161% YoY to INR19.4b. Operating loss stood at INR4.7b. PAT declined 64% YoY to INR1.5b. Management has guided a 20% RoE in FY28. As of 1HFY27, the company’s revenue grew 108% YoY to INR24.4b. Operating loss remained flat YoY at INR7.6b. PAT declined 51% YoY to INR4.9b.
Valuation and view
* GPL delivered in-line pre-sales on the back of strong sustenance sales and benefits of diversification across many regions. Further, collections growth has been healthy, which is encouraging. The continuing BD activity as well as launches planned in the coming quarters provide comfortable growth visibility over the medium term. While net debt increased in 2QFY27 due to the project additions, leverage remains at comfortable levels
* We like the company’s intense focus on generating better FCF in the coming quarters, and the profitability profile is likely to improve over the medium term.
* We retain the 15% NAV premium on the residential business. However, since we have increased the WACC rate to 11.1% (from 10.6% earlier) and widened the cap rate on commercial to 8.5% (from 8.0% earlier), our TP has been reduced to INR2,200. Reiterate BUY.
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