Buy Godrej Properties Ltd For Target Rs.3,435 by Motilal Oswal Financial Services Ltd
Stable quarter; highest pre-sales for the calendar year
Surpasses BD guidance by 17% for FY25
* GPL’s pre-sales volume for 3QFY25 declined 6% YoY (-21% QoQ) to 4.1msf, resulting in a pre-sales value of INR54.5b (-5% YoY/5% QoQ). Notably, 77% of the contribution came from newly launched projects. For 9MFY25, presales were up 48% YoY to INR193b.
* In 3QFY25, GPL launched seven projects across four cities, with a total cumulative saleable potential of 2.2msf, and delivered 2.6msf.
* Business development: GPL added four new projects in 3QFY25 with a potential saleable area of 5.9msf and an estimated GDV of INR108b. Meanwhile, in 9MFY25, the company added 12 new projects with a saleable area of 16.9msf, surpassing the annual guidance of INR200b to INR234.5b. (117% of FY25 guidance).
* Commercial projects on Golf Course Road, Gurugram, received an OC in 3QFY25 and are 40% leased out, while the near-completion assets at Koregaon Park, Pune, (1.5msf) are 16% pre-leased.
* GPL leased ~0.59msf across five assets in 3QFY25.
* The company reported a net operating cashflow of INR615m for 3QFY25, while INR34.4b for 9MFY25.
* P&L performance: GPL reported revenue of INR9.7b, up 193% YoY (16% above our estimates), guided by the strong delivery of 2.6msf of projects. For 9MFY25, the company reported INR28b, up 74% YoY.
* GPL reported EBITDA of INR276m, compared to the loss of INR416m in 3QFY24 and against our estimate of INR753m, due to higher launches than our estimates. EBITDA margin came in at 2.8%.
* GPL's other income increased 24% YoY, resulting in a PAT of INR1.6b, up 153% YoY (43% below estimate), with a profit margin of 16.3%. For 9MFY25, the company reported a PAT jump of 276% YoY to INR10b.
QIP leads to debt reduction
* In 3QFY25, GPL’s gross collections jumped 27% YoY to INR34.6b, guided by the strong delivery of 2.6msf projects, whereas OCF (pre-interest and tax) was down 23% YoY to INR6.1b.
* In Q3FY25, the company raised INR60b through a QIP, ~23 million shares at INR2,595/share. It plans to use the funds to expand its project pipeline and grow its business.
* The company spent INR26.8b on new land investments and approvals. This, along with the capital raise, led to a cash surplus of INR37.2b and reduced the net debt to INR38b or 0.2x of equity (vs. 0.7x as of Sep’24).
Key highlights from the management commentary
* Exceptional calendar year: GPL achieved a record-breaking pre-sales of INR288b in CY24, securing the top position amongst its peers. This strong performance reflects the company's strategic focus on high-demand markets and its ability to capitalize on growth opportunities.
* Long-term goal: The company aspires to lead in each individual market besides maintaining a strong national presence.
* Promoter stake: The promoter stake reduced to 46.5% following the QIP issue in Q3, vs 58.5% in Q2.
* 4QFY25 anticipation: The management is optimistic about building on the current momentum and is confident in meeting its FY25 sales guidance of INR270b, which would translate to a 4QFY25 run rate of INR77b.
* Launches: The company launched seven projects across four cities in 3QFY25, with a total saleable area of ~2.2msf, contributing ~77% of Q3 pre-sales.
* MMR: Reserve, Avenue Eleven, Godrej City, Horizon
* Pune: Evergreen Square
* NCR: Miraya
* Kolkata: Blue
* Upcoming launches: Management is confident in meeting the FY25 launch guidance of INR300b. The remaining inventory to be launched in Q4 is currently at INR64b. Upcoming launches are expected in Hyderabad, Noida, Gurgaon, MMR, Pune, and Indore.
* QIP issue: In Q3FY25, the company raised INR60b through a QIP, ~23 million shares at INR2,595/share. It plans to use the funds to expand its project pipeline and grow its business.
* Sustenance sales: Management believes that sustenance sales momentum is in line with the strategy and will continue to build on it in future.
* Bangalore experiencing growth: The growth in Bangalore sales, which reached INR48b in 9MFY25, was ~2x the sales of INR24b in FY24. Therefore, Bangalore will remain a key market for GPL, with continued growth expected.
* NCR market: Management believes that there is demand and pricing opportunity in both the premium and luxury segments. The Golf Course Road project is expected to drive growth in terms of value, while Noida is poised to deliver volume growth.
Valuation and view
* GPL completed 9MFY25 with strong performance across key operational parameters of pre-sales and cash flows. With a strong launch pipeline, the company remains on track to achieve/surpass its full-year pre-sales guidance. Thus, we keep our FY25/FY26 pre-sales estimates unchanged.
* While gross margin has sustained at a healthy 35-40% for recognized projects in P&L, the higher scale of operations has led to a proportionately high overhead increase, leading to subdued operating profits. We expect the sales booked over the last two years, with a better margin profile and outright ownership, to be recognized after FY26/FY27, which will allay investor concerns.
* We believe GPL will continue to surprise on growth, cash flows, and margins, given its strong pipeline and healthy realizations, which have been key concerns for investors. We reiterate our BUY rating with a revised TP of INR3,435 (previously INR3,724), implying a 44% potential upside. The reduction in TP is due to dilution as a result of the QIP issue.
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