BSE SENSEX S&P CNX 16,913 5,114 Bloomberg GPL IN Equity Shares (m) 78.0 52-Week Range 845/570 1,6,12 Rel. Perf. (%) 0/-9/-2 M.Cap. (INR b) 46.4 M.Cap. (USD b) 0.9 4QFY12 Results Update Sector: Real Estate Godrej Properties CMP: INR595 TP: INR635 Neutral Godrej Properties reported strong QoQ growth in 4QFY12 revenue to INR3.5b (2.3x 3Q figure). This sharp jump is largely attributable to INR2.2b revenue from recently concluded ~0.35msf office space deal with group companies at Godrej One (Vikhroli). Despite 62% revenue contribution from Godrej One (which is likely to enjoy ~40% EBITDA margin), overall EBITDA margin during 4QFY12 stood at only 22.6%. The disappointment is due to (a) cost escalations across projects, and (b) ~11% revenue booking from commercial projects at Kolkata, which as per management guidance are running at break-even. PAT de-grew 34% YoY due to higher effective tax rate. Quarterly sales run-rate was also boosted by office space deal at Godrej One. Total 4QFY12 sales stood at 0.8msf (INR7.7b) v/s 0.52msf in 3QFY12 (INR3.5b). Overall FY12 sales grew ~50% to ~INR15.6b. With recent Institutional Placement Program (8.2m equity shares worth INR4.7b), net debt declined to ~INR15.5b (net DER of 1.1x) from ~INR19.5b in 3QFY12 (net DER of 2x), although gross debt remain unaltered. GPL recommended dividend of INR3/share for FY12 v/s INR4.5 in FY11. GPL is trading at ~ 11% discounts to our NAV estimate of INR665/share, 37.7x FY13E EPS and 3.0x FY13E BV. Maintain Neutral. Sandipan Pal (Sandipan.Pal@MotilalOswal.com); +91 22 3982 5436
Management commentary The management highlighted GPL's successful effort towards business development activities in FY12 with new addition of ~10.5msf projects, which would drive longer term growth. Commercial offtake has picked up with sales of 0.67msf in FY12, which improves the confidence on monetization of projects on hand. GPL has guided for strong focus on project launches with 15 new projects in radar (all residential) to meaningfully improve the capital efficiency. However the management sounds cautious on account of a) challenging macro environments, and b) tremendous input cost pressure across projects. Sustaining project-level margin and ramping up construction pace would be a major focus for the company going forward. Key financial highlights Revenue up ~7% YoY, 2.3x QoQ: 4QFY12 revenue grew 2.3x QoQ to INR3.5b. Sharp QoQ jump is attributable to ~INR2.2b of revenue from recently concluded 0.35msf (~INR5.1b) office space deal with group companies at Godrej One (Vikhroli). The booking has been in-line with collection GPL has made in 4QFY12 from this transaction. Ex-Vikhroli deal, revenue stood at INR1.3b, in tandem with quarterly run-rate over FY12. Other key revenue contributors are: a) Garden City, Ahmedabad (three phases): INR588m, b) Waterside, Kolkata: INR309m, Genesis INR84m, c) Prakriti, Kolkata: INR178m, and d) Rest from other residential projects. EBITDA margin up ~470bp QoQ, but disappoints given the revenue mix: EBITDA was down 17% YoY at INR790m, while EBITDA margin improved to 22.6% from 17.9% in 3QFY12. Despite QoQ uptick, the margin was disappointing since ~62% of revenue in 4QFY12 was contributed by Godrej One (Vikhroli commercial) which is likely to enjoy ~40% EBITDA margin. We believe the disappointment is attributable to (a) cost escalations across projects, and (b) 11% revenue booking from commercial projects at Kolkata, which as per management guidance are running at break-even. PAT down YoY, higher tax rate offsets higher other income: GPL's net profit degrew 34% YoY to INR398m. Other income of INR230m comprises ~INR200m of cash out from ASK Property Investment through 49% stake dilution concluded in 4QFY12 at its Sahakar Nagar (Chembur, Mumbai) redevelopment project. However, higher other income was offset by higher effective tax rate of 37.4%. FY12 witnessed strong growth in revenue booking: Commencement of several new projects during the year and contribution from commercial sales in 4Q led to 71% YoY growth in FY12 revenue to INR7.7b. EBITDA grew 50% to INR1.6b, but PAT declined 25% to INR979m largely due to (a) lower other income and (b) higher tax rate. Net debt level down sharply to INR15.5b: With ~INR4.6b net from equity inflow from IPP, GPL's net debt declined sharply to INR15.5b (v/s INR19.3b in 3Q), lowering net DER to 1.1x from 2x in 3Q. However, gross debt remains unaltered. Cost of debt stood at 11.57%. 2
Revenue contribution by key projects (%) EBITDA margin QoQ (%) steady despite high revenue contribution from Godrej One, Mumbai Source: Company/MOSL Key operational highlights Sales run-rate boosted by commercial sales at Vikhroli: Reported sales volume was 0.8msf (INR7.7b) v/s ~0.52msf (INR3.5b) in 3QFY12, which comprises (a) 0.36msf (INR5.1b) of commercial sales at Godrej One, and (b) 0.09msf (INR1.3b) at Godrej Platinum (GPL is development manager with 10% revenue share). Barring these two projects the sales from ongoing projects declined QoQ/YoY meaningfully to 0.3msf (INR1.3b) due to delay in planned launches. 4Q saw new launches: GPL launched a few projects during 4QFY12 - a) Prakriti Phase 4 (Kolkata), b) Alpine (Managlore), c) Palm Groves (Chennai). It has guided for strong monetization plan with ~6 new launches over 1HFY13 and several others over 2H from its recently acquired projects. Sales growth of ~50% YoY in FY12, new acquisition of ~10.5msf lends monetization visibility over FY13: In FY12, GPL achieved sales growth of ~50% to ~INR15b (2.3msf) with entry into several new markets like NCR, Chennai, Nagpur etc. The company pursued an aggressive projects acquisition strategy over FY12 with addition of 10 new projects across geographies (including entering into redevelopment vertical). We believe, new acquisitions would lend visibility of further growth in sales for FY13. Valuation and view: Maintain Neutral Over past 12 months, the company has significantly ramped up its project basket by entering into various projects including redevelopment vertical. Going forward, we expect the key challenges would be a) success in stated launch plan, b) execution ramp-up in commensurate with acquisition, and c) progress in de-leveraging. Equity infusion and successful commencement of BKC projects could be a key positive. GPL is trading at ~ 11% discount to our NAV estimate of INR665/share, 37.7x FY13E EPS and 3.0x FY13E BV. We maintain Neutral view on the stock. 3
Sales boosted due to Godrej One transaction in 4Q Realization improves due to same reason (INR/sf) Sales trend in key ongoing projects over FY12 (msf) Project 1QFY12 2QFY12 3QFY12 4QFY12 FY12 GCC, Ahmedabad 0.24 0.19 0.18 0.05 0.66 Frontier, Gurgoan 0.07 0.05 - - 0.12 Prakriti, Kolkata 0.12 0.24 0.06 0.09 0.51 Bangalore - Platinum - 0.04 0.03-0.07 Vikhroli (Platinum) - - 0.15 0.09 0.24 Vikhroli (One) - - 0.36 0.36 Alpine, Mangalore - - 0.01 0.04 0.05 Others - - 0.01 0.08 0.09 Waterside*, Kolkata 0.04 0.02 - - 0.14 Genesis, Kolkata - 0.03 0.04 0.06 0.13 Etrenia, Chandigarh 0.03-0.01-0.04 Total 0.56 0.57 0.52 0.77 2.41 *Leased 70599sf in Waterside in 4QFY12 Project-wise execution status (% completion) Average realization across ongoing projects over FY12 (INR/sf) Net debt down sharply (gross debt unchanged) due to INR4.7b of equity issuance Source: Company/MOSL 4
Key balance sheet changes (INR m) 4QFY11 2QFY12 4QFY12 Difference Remarks Capital 699 699 780 82 Issue of 8.18m equity share through IPP R&S 8,417 8,719 13,646 4,927 IPP proceed of ~INR4.7b added with 2HFY12 net profit of ~0.7b Secured Loan 5,478 4,401 20,873 9,012 Addition of ~INR6.6b (which includes ~INR5b original debt, and ~INR1.4b (~20% of the total) for payment of MMRDA premium) related to recently concluded Jet deal at BKC Unsecured loan 3,971 7,460 Minority Interest 148 214 467 253 Total Liabilities 18,713 21,492 35,766 14,274 Fixed asset 475 479 650 171 Investment 141 29 0 (29) Deffered Tax Asset 8 11 3 (7) Net current asset 21,508 23,674 46,439 22,765 Inventories 10,154 11,497 27,384 15,887 Largely attributable to a) recently entered purchase agreement at Vikhroli land (~INR7.2b)from earlier lease model, b) the BKC deal with Jet and c) other acquisitions Sundry Debtors 2,900 3,578 5,729 2,151 Cash and Bank balances 1,490 313 5,323 5,010 Contributed by ~INR4.6b net proceeds from equity infusion Loans and Advances 6,964 8,288 7,975 (312) Less : Current Liabilities 3,420 2,702 12,866 10,164 Sundry Creditors 2,920 2,628 10,845 8,217 Payables emerging from a) Vikhroli land purchase (~INR7.2b over next 5.5years)and b) the BKC deal with Jet Provision 501 74 481 408 Net current asset 18,088 20,973 35,085 14,112 Total Assets 18,713 21,492 35,766 14,274 Net Debt 7,817 11,519 15,550 4,031 Net DER (x) 0.9 1.2 1.1 Source: Company/MOSL 5
Godrej Properties: an investment profile Company description Godrej Properties Limited (GPL), established in 1991, is part of the 113-year-old Godrej group of companies. GPL, which develops residential and commercial properties, recently entered large township development. The company expanded its footprint into 12 key tier-1 and tier-2 cities, with a land bank of ~400 acres and developable area of ~77msf, where it has economic interest for over 50msf. Key investment positives Focused mid-income housing play with an asset-light model. GPL's development portfolio is skewed in favor of JDA projects. Widely recognized Godrej brand gives GPL the unique strength to emerge as a true pan-india player. Key challenges Higher inclination towards joint-development model caps gains during an economic upswing and exposes the company to the potential risk of operational conflicts with JD partners. High leverage could exert pressure on cash flow. Recent developments Quarterly sales run-rate was also boosted by office space deal at Godrej One. Total 4QFY12 sales stood at 0.8msf (INR7.7b) v/s 0.52msf in 3QFY12 (INR3.5b). Overall FY12 sales grew ~50% to ~INR15.6b. With recent Institutional Placement Program (8.2m equity shares worth INR4.7b), net debt declined to ~INR15.5b (net DER of 1.1x) from ~INR19.5b in 3QFY12 (net DER of 2x), although gross debt remain unaltered. Valuation and view Over past 12 months, the company has significantly ramped up its project basket by entering into various projects including redevelopment vertical. Going forward, we expect the key challenges would be a) success in stated launch plan, b) execution ramp-up in commensurate with acquisition, and c) progress in de-leveraging. Equity infusion and successful commencement of BKC projects could be a key positive. GPL is trading at ~ 11% discount to our NAV estimate of INR665/share, 37.7x FY13E EPS and 3.0x FY13E BV. We maintain Neutral view on the stock. Sector view RE sector has been a major underperformer over the last 12 months with multiple operational and nonoperational headwinds such as volume slowdown (due to declining affordability), monetary tightening, pilling liquidity pressure etc. However, with a buoyant macro-picture, likelihood of interest rate cut and increasing focus on execution, we believe the outlook will improve going forward. Comparative valuations Godrej Prop Phoenix MLIFE P/E (x) FY13E 37.7 23.5 9.7 FY14E 30.1 11.0 8.8 P/BV (x) FY13E 3.0 1.7 1.0 FY14E 2.8 1.5 0.9 EV/Sales (x) FY13E 6.8 9.3 2.3 FY14E 5.7 4.5 2.0 EV/EBITDA (x) FY13E 31.1 13.5 8.1 FY14E 24.2 7.6 7.1 EPS: MOSL forecast v/s consensus (INR) MOSL Consensus Variation Forecast Forecast (%) FY13 15.8 21.6-27.0 FY14 19.8 26.3-24.6 Target price and recommendation Current Target Upside Reco. Price (INR) Price (INR) (%) 595 635 6.7 Neutral Stock performance (1 year) Shareholding Pattern (%) Mar-12 Dec-11 Mar-11 Promoter 64.0 67.3 67.3 Domestic Inst 1.8 2.4 1.7 Foreign 25.3 19.9 19.5 Others 9.0 10.4 11.6 6
Financials and Valuation 7
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