Godrej Properties boosts its product pipeline
Consolidation & execution helping it to add projects, increase sales
The stock of Godrej Properties gained about 24 per cent over the last month on account of strong sales in the June quarter and brokerage upgrades. The realty index, however, remained flat during this period.
Besides, the company continues to build a project pipeline that gives visibility in revenues. The latest trigger for the company is its two projects in Bengaluru.
The company through a joint venture and development agreement will develop 66 acres of land with a saleable area of just over six million square feet. Including these two, the company is developing 15 projects in the city. This is significant considering the fact that the company had 3.5 million square feet of launches over the last twelve months and has added seven million square feet of new projects over the last 15 months.
A shift in demand towards reputed developers and consolidation are helping the company to get projects on attractive terms. These advantages help the stock become a top pick in the realty space for most brokerages.
Analysts at Bank of America Merrill Lynch say a strong Godrej brand and an asset light model make the company best placed to benefit from consolidation through its joint venture model. They believe the company’s earnings per share over the FY17-20 period would grow annually by 44 per cent, while its return-one-quity would increase by over 900 basis points to 20 per cent in FY20 on the back of robust sales from recent or upcoming launches, coupled with completion or renegotiation of low margin legacy projects.
They believe the company is among the best placed in the sector on execution, product portfolio and financial strength. Net debt to equity at 1.7 times is expected to come down from the sale of Godrej BKC inventory.
The two recent projects will help to improve the pipeline and sales, which had hit a record level in the June quarter. Despite the weak sentiment on account of the goods and services tax and the Real Estate Regulation Act, the company reported its highest residential project sales of ~1,470 crore, in which the share of Godrej Properties was ~960 crore. Four launches in Mumbai, Pune and Greater Noida contributed to about 80 per cent of the company’s June-quarter sales.
At the current price, the stock is trading at 27 times its FY19 estimates and given target prices around the ~700-mark, there is a returns potential of about 13 per cent. Investors should await steady growth in launches and higher sales to take an exposure to the stock.