Buy Godrej Properties Ltd for the Target Rs 2,350 by Motilal Oswal Financial Services Ltd
Focus shifts to profitability and cash flow generation BD continues in 1QFY27; the launch pipeline remains healthy
Godrej Properties (GPL) added three new projects, offering a GDV potential of INR95b. These include INR90b from group housing projects in NCR, and INR5b plotted development in Chennai. With these projects, it has already achieved 48% of its annual BD guidance of INR200b. GPL launched new projects with INR105b GDV in 1QFY27, and the planned pipeline of INR375b launches in the remaining FY27 would support pre-sales growth in the coming quarters.
Healthy pre-sales in 1Q; we maintain our growth estimates
In 1QFY27, pre-sales increased 22% YoY to INR86.5b, which was an 8% beat on our estimates. The performance was driven by new launches including Godrej Vanantara in Bengaluru (INR32.4b), Godrej Samaris in Gurugram (INR12.5b) and Godrej Brooklyn Avenue, Hyderabad (INR3.2b). Bengaluru was the largest contributor, accounting for INR38.0b (44%) of quarterly pre-sales, followed by MMR (INR18.1b; 21%), NCR (INR15.4b; 18%), Pune (INR9.4b; 11%), and Hyderabad (INR4.1b; 5%). Given the healthy launch pipeline and sustenance inventory, GPL guided INR390b of pre-sales in FY27 (+14% YoY). We maintain our expectation of a 10% CAGR in pre-sales to INR413b during FY26-28E
Targets INR200-220b cumulative NOCF in FY27-28
Collections increased 18% YoY to INR43.5b (in line with our estimates), while operating cash flow stood at INR4.0b during the quarter. The company has guided cumulative collections of INR520-550b and INR200-220b of NOCF in FY27-28. Based on the pre-sales growth and progress in execution, we expect collections to grow by 17% CAGR to INR274b during FY26-28E. Accordingly, we have built in INR215b in NOCF during FY27-28. Net debt increased by INR12b QoQ to INR76b in 1QFY27, while net D/E remains comfortable at 0.39x. We expect net debt of INR80b/INR74b in FY27/FY28.
Financials
In 1QFY27, GPL’s revenue stood at INR5.1b, up 16% YoY. Operating loss stood at INR2.8b with EBITDA margin at -56.3%. PAT profit was at INR3.5b, down 42% YoY, with a PAT margin of 69%. The company has guided a 20% RoE in FY28. Accordingly, we revise our revenue and profitability estimates to incorporate the impact of higher completions and a slightly better margin profile.
Valuation and view
GPL delivered healthy pre-sales growth despite a high base on the back of 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. 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. Hence, we now assign a 15% NAV premium to the residential business and reiterate our BUY rating on the stock with an SoTP-based TP of INR2,350.
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