Godrej Properties

30 Mar

Developing new residential properties beyond top tier cities – Godrej Properties

Update on the Indian Equity Market:

On Wednesday, NIFTY closed at 17,498 (+1%). MEDIA (+2.3%), FINANCIAL SERVICES 25/50 (+2%) and FINANCIAL SERVICES (+2%) were the top gainers, whereas, METAL (-2.2%), OIL & GAS (-0.4%) and PHARMA (-0.2%) were the top losers. Within Nifty 50, HDFCLIFE (+3.5%), BAJAJFINSV (+3.3%) and TATACONSUM (+3%) were the top gainers and ONGC (-5.4%), HINDALCO (-4.9%) and JSWSTEEL (-4.6%) were the top losers.

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/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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12 Jan

Expect a boom in the real estate sector in next few years– Godrej Properties

Update on the Indian Equity Market:

On Tuesday, Nifty closed 0.5% higher at 14,563. Within NIFTY50, TATAMOTORS (+7.5%), GAIL(+4.7%), and BHARTIARTL (+4.0%) were the top gainers, while ASIANPAINT (-3.2%), TITAN(-2.2%), and NESTLEIND (-2.1%) were the top losing stocks. Among the sectoral indices, PSU BANK (+6.0%),REALTY (+2.8%) and MEDIA (+1.4%) were the top gainerswhilePHARMA (-1.3%), FMCG (-0.6%), and IT (-0.2%) were the only losing sectors.

Expect a boom in the real estate sector in next few years– Godrej Properties

Excerpts of an interview with Mr. Pirojsha Godrej, Executive Chairman, Godrej Properties (GODREJPROP), aired on CNBC-TV18 on 11thJanuary 2021:
● The Maharashtra Government has cut real estate premiums by 50% until 31st December 2021.
● In 1HFY21, volume growth went up 11% for GODREJPROPwith ~4.2 mn sq. ft. of sales in the same period.
● Covid-19 concerns are in the past now for the company and the management is expecting a much better 2HFY21E. 4QFY21E will be especially good as the company has planned several launches. The overall industry momentum is becoming positive.
● On the cash flow front, collections in 3QFY21 were much stronger than 1HFY21 as construction resumed in full swing.
● Mumbai, Pune, NCR, and Bangalore are important markets forGODREJPROP and the company is seeing good traction across these markets.
● Decisions of MaharashtraGovt. to first reduce stamp duty and now premium is very encouraging for the real estate market in Maharashtra. As a result management expects to see Mumbai market to do well.
● Final notification in relation to reduction in premiums is yet to come out. Management’s sense currently is that there will be about 5-10% reduction in overall development costs depending on the type of project. That is a meaningful reduction which will spur activity in the sector.
● Premium cost is an upfront cost to be borne by thedeveloper. The upfront expense will come down significantly which will improve liquidity.
● The 2 steps taken by the government, in combination with other factors- increased desire for home ownership post covid-19, affordability in terms of lower interest rates, property prices not having appreciated in last 5-7 years- bode well for the real estate sector in years ahead.
● Rise in commodity prices is concerning. But overall, the Government’s attention on real estate sector as a lever for economic growth is meaningful. The industry can take some cost increase in stride provided the overall industry continues to move in a positive direction.
● A boom in real estate sector could start sometime in next couple years. Fresh inventory addition has been limited in the last few years and the demand-supply equilibrium will tilt as demand starts coming back gradually.
● Confidence to invest into under construction houses has started coming back- but the beneficiaries of that are largely the leading players in each market and not the smaller players.

Consensus Estimate (Source: market screener website)
● The closing price of GODREJPROPwas ₹ 1,474as of 12-January-2021. It traded at 154x/ 96x/ 61x the consensus EPS estimate of ₹9.6/15.4/24.0 for FY21E/ FY22E/ FY23E respectively.
● The consensus target price of ₹ 960/- implies a PE multiple of 40x on FY23E EPS of ₹24.0/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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