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Ticking off boxes across key parameters

Sustainability in cash flows and profitability can drive further rerating

New launches drive record performance

* GPL reported its highest ever pre-sales of INR225b in FY24, up 84% YoY (61% higher than guidance), becoming the largest developer in terms of bookings.

* The performance was mainly led by new launches, which increased by 65% to INR230b in FY24, of which 70% were absorbed during the year and contributed 70% to total pre-sales.

* Sales volume increased by 31% YoY to 20msf, while realization rose 40% YoY, driven by a higher contribution from high-realization markets of NCR and MMR and enhanced positioning in the premium segment.

* Pre-sales in NCR trebled to INR100b, driven by INR100b worth of new launches, and contributed 45% to total bookings. Pre-sales in MMR rose over two-fold to INR65b, led by INR88b worth of launches.

Guides for 20% pre-sales growth in FY25; aims to sustain that for medium term

* The management has guided for pre-sales of INR270b in FY25, which implies YoY growth of 20%. With ongoing project inventory of just seven months, launches will again be a key driver of growth in FY25.

* Thus, the company is gearing up to launch projects worth INR300b in FY25 across its core markets of NCR, MMR, Bengaluru and Pune, as well as the recently entered Hyderabad market.

* The INR300b launch guidance incorporates 10% of slippages and only considers the initial phase of most of the projects (40-50% of total project size), and based on the response, GPL can release more inventory. Thus, we remain confident about GPL’s ability to meet or even surpass its launch guidance, which will be an upside risk to our sales estimates.

* Moreover, despite a higher base of bookings, the management remains confident of sustaining 20% growth over the medium term on the back of a large project pipeline of ~100msf valued at over INR1.2t and continued investment in BD to capture market share in certain existing markets like MMR, Pune and Bengaluru.

Pune, Bengaluru and Hyderabad to drive growth in near term

* Contrary to the performance of last two years, which was mainly driven by NCR and MMR, we expect the contribution from Pune, Bengaluru and other markets to significantly improve going ahead as the company is focusing on monetization after strong BD in these markets.

* GPL expects to scale up its launches in Bengaluru to ~INR50b in FY25 (vs. INR18b in FY24), INR37b in Pune (vs. INR32b in FY24) and INR27b in other markets, e.g., Hyderabad and Kolkata (vs. INR12b in FY24).

* The company will be left with three to four years of pipeline in Pune, Bengaluru and MMR and less than two years of pipeline in NCR. Thus, GPL aims to continue its investment in new projects across its core markets in order to sustain the market share or grow on that base.

Strong cash flow generation to support aggressive spending in BD

* Strong growth in pre-sales was also matched with robust improvements in cash flows as GPL reported the highest-ever OCF of INR43b, up 23% YoY. Against that, GPL spent INR54b on land investments, leading to an increase in net debt to INR62b or 0.6x of D/E.

* The company has indicated a new project addition target of INR200b, implying similar spending on BD. Since markets are conducive to project acquisitions, GPL can surpass its guidance as is evident by its performance over the past two years.

* However, as pre-sales rise, we expect operating cash flows to about double to INR80b by FY27, which will support higher spending on BD. Hence, we expect GPL to generate surplus cash flows from FY26 onward, restricting net debt to INR80-85b.

BD aggression paying off; reports sharp improvement in margins

* GPL went aggressive on acquiring land at the time when the industry was still at an initial stage of an uptrend and signed projects with saleable area of 55msf and revenue potential of INR600b over FY22-24.

* The aggression is now bearing fruit as the company has launched projects at average 19% higher realization than the underwriting price, and with all these projects being fully owned, the differential will flow down to EBITDA, resulting in better margins.

* This is also reflected in the imputed EBIT margin of 27% reported in FY24, which is significantly higher than GPL’s historical performance, and given the strong traction, the management believes that there is scope to improve it further.

Valuation and view

* GPL delivered an exceptional performance in FY24, and given the healthy demand environment, the management is confident of delivering consistent growth over the medium term.

* Despite strong progress made on BD over the last two years, GPL continues to aim for higher new additions, which would enable it to achieve targeted growth. The increase in cash flows and INR30b of surplus cash will support higher spending without affecting the balance sheet.

* While GPL will continue to build on its growth path, the turnaround in cash flows and profitability, which has been a key investor concern, will drive further re-rating in the stock.

* We reiterate our BUY rating with an increased TP of INR3,600, implying 16% potential upside.

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SEBI Registration number is INH000000412