Developing new residential properties beyond top tier cities – Godrej Properties
Update on the Indian Equity Market:
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Excerpts of an interview with Mr. Mohit Malhotra, MD & CEO, Godrej Properties (GODREJPROP), with The Economic Times on 28th March 2022:
- Godrej Properties is developing a new residential property in Bangalore. It is a 30-acre plus project with a revenue potential of almost ₹ 10 bn.
- After a period of an eight-year downcycle in the residential property market, the company is witnessing extremely strong consumer demand with affordability being at an all-time high.
- The ongoing Russia-Ukraine war has resulted in a 30-40% jump in prices of key commodities like steel and aluminum.
- Keeping the inflation factor in mind, the company has taken 4-8% price hikes across projects at the beginning of 4QFY22. Despite these price hikes, the company has not seen any major demand pushback from the customers.
- The company is among the top players in the top four cities of Mumbai, NCR, Bangalore, and Pune. But the market share is between 3-4% and the strategy is to first increase this market share and then enter into new cities closer to these locations.
- Intending to enter new cities in India, the company plans to do a plotted development in a recently acquired 50-acre land in Sonipat, Haryana. The project has a revenue potential of ₹ 7500-10000 mn.
- Being very positive about the outlook of the market, for these expansion plans, the company is looking to invest close to USD 1 billion over the next few years.
Asset Multiplier Comments:
- Industry-wide price hikes are inevitable as inflation is here to stay and the industry is already at very low profitability. However moderate price hikes are less likely to impact demand.
- Godrej Properties being a near-zero debt company and looking to invest close to USD 1 billion, is gauging rising demand in metros as well as tier 2 cities. Near-term supply-side issues may not create a hindrance to the long-term demand trajectory.
Consensus Estimate: (Source: market screener & TIKR website)
- The closing price of GODREJPROP was ₹1,662/- as of 30-March-2022. It traded at 87x/64x the consensus earnings estimate of ₹ 19/26 per share for FY23E/FY24E respectively.
- The consensus target price of ₹ 1,584/- implies a P/E Multiple of 61x on the FY24E EPS estimate of ₹ 26/-.
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