Robust project pipeline for Godrej Properties
New projects should help maintain volume growth momentum
The Godrej Properties stock doubled over the past year. It could see more gain, as sales momentum is expected to continue, on new launches and the project pipeline. While sales growth in the key realty markets has been muted for the sector, the company has been outperforming its peers.
Sales volume for the nine months ended December of 2017-18 was up 91 per cent. Given this trend, analysts expect the company to report double its sales growth in FY18, compared to FY17. The company now has a market share of 2.7 per cent in the top eight cities, compared to one per cent in FY17. Sales momentum is good and the project pipeline is better.
On a cumulative basis, the company has added 27 million sq ft of space after demonetisation, taking projects under development to 132 mn sq ft. Analysts at HSBC say even on this heightened momentum, the project addition rate continues at a much stronger pace than sales. The latest addition announced last month is a residential project in Gurugram with total saleable area of 0.75 mn sq ft.
What has helped the company which wants to be among the top three in the four largest markets of Mumbai, National Capital Region, Bengaluru and Pune has been the surge in partnership deals, especially with smaller developers after the note ban. As the new deals are under the capitallight joint development or development management model, it requires little upfront investment and is best suited in an environment where overall demand is muted.
The strong sales momentum is also helping it bring down debt and improve cash flow. From a loss of ~5.4 billion in FY17, operating cash flows improved to ~4.5 billion, with debt down by 12 per cent in the financial year-to-date to ~31 billion. Another ~5 billion expected from the Bandra Kurla Complex project should help.
While the company’s first nine month performance in FY18 is its best ever across parametres, analysts at IIFL Institutional Equities believe with reforms in the residential space continuing to benefit larger players, Godrej’s forward-looking model and strong brand will aid in gaining market share over the next few years. At the current price, the stock is trading at 36 times its FY19 estimate.