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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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18 Feb

‘Opportunities for growth delivery across segments’- Amitabh Chaudhry, Axis Bank

Update on the Indian Equity Market:

On Monday, Nifty 50 closed marginally lower at 12,046. IT was the only sector that ended marginally in the green. PSU Bank (-3.0%), Realty (-1.5%) and Media (-1.1%) were the top losers. Titan (+1.7%), GAIL (+1.6%) and Nestle (+1.6%) were the top gainers while Yes Bank (-4.0%), Coal India (-3.8%) and ONGC (-3.2%) were the top losers for the day.

‘Opportunities for growth delivery across segments’- Amitabh Chaudhry, Axis Bank

Excerpts of an interview with Amitabh Chaudhry, MD, and CEO, Axis Bank published in Mint on 17th February 2020:

  • The market share of Axis Bank is in the 4.5-5 percent range in deposits and loans. Opportunities are there and growth delivery across all businesses is possible. Although the loan growth has been good, the bank has seen some unexpected stress. Now the stock of overall stress has come down which will hopefully be reflected in the slippages.
  • The bank has been one of the most transparent ones in his view, in terms of disclosing numbers. Barring further shocks, from all the metrics, the future looks good, which they need to demonstrate in the coming quarters.
  • The growth is mainly coming from refinancing activity. No significant new activity has been observed. Hence, he is of the view that economic activity will take some time to pick up.
  • The SME side of the business is the first one to get a hit as the economic activity slows. The average realizations are coming down in a very calibrated way. In some sectors, the exposure has been reduced and some new relationships added.
  • The growth has been good in the retail segment, aided by slower lending by Non-banking financial companies (NBFCs) and the slowdown in consumption. Retail estate and some other asset classes also help in adding to the momentum in retail. In terms of the delinquencies and risk metrics, the bank is at historical lows except for CVC and some parts of MFI business.
  • The retail story is the talk of the day. Everyone is either already into the business or entering it. Either way, the probability of the retail cycle coming is increasing as time passes. The government is also trying to offer relief measures to push consumption, RBI also has a loose monetary policy, thus liquidity is there in the system.
  • Despite the rabi harvest being pretty good, there hasn’t been a significant pickup in tier-2 and tier-3. The slowdown has helped inventory stabilization at a reasonable level but there has not been any pickup in consumption as yet.
  • The government is trying to infuse liquidity to benefit both the real estate and NBFC sectors. Some of the troubled NHBCs today have high exposure to the real estate sector. So, if NBFC is okay and can start lending, the money is expected to go to the real estate sector.
  • The banker is of the view that the cleansing process is not over yet and that the government will continue going after people who have taken the system for a ride. So, that means there will be a negative surprise but they have to be prepared for it.
  • In the hindsight, it was a good thing they raised capital when they did. There is enough ‘firepower’ now for continued growth over the next few years, which will be used in a very calibrated manner.
  • The promises made as part of the GPS strategy haven’t changed yet. The aspirational 18% return on equity (ROE) is not possible. However, they have been able to maintain the long- term credit cost below 1 percent and cost to asset ratio below 2%. These promises were made because they believe they have the means to do something very different, digital banking is one of them.

Consensus Estimate: (source: market screener and investing.com websites)

  • The closing price of Axis Bank was ₹ 739/- as on 17-February-20. It traded at 2.5x/ 2.2x/ 1.9x the consensus Book Value estimate of ₹ 302/ 342/ 396 for FY20E/ FY21E/ FY22E respectively.
  • Consensus target price is ₹ 847/- which implies a Price to Book multiple of 2.1x on FY22E Book value of ₹ 396/-
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11 Nov

Indiabulls Housing Finance: Maintains healthy cash balance on the balance sheet

Update on the Indian Equity Market:

On Friday, NIFTY closed ~104 points lower at 11,908 points. International rating agency Moody’s Investors Service downgraded India’s outlook to negative from stable on concerns that the country’s economic growth will remain materially lower than in the past. The negative sentiment led to a selloff in the stock market. Amongst the NIFTY 50 Stocks, YESBANK (+4.8%), INDUSINDBK (+2.9%), ICICIBANK (+2.4%) were the largest gainers; while INFRATEL (-4.9%), SUNPHARMA (-4.3%) and GAIL (-3.9%) were the top losers. The government’s announcement to set up an Alternative Investment Fund (AIF) in aid of the stalled housing projects kept the sentiment positive for the NIFTY REALTY index which closed higher by 1.7%. PRIVATE BANK was the only other sector in the NIFTY sector indices, to close in the green. NIFTY Pharma (-2.2%), PSU BANK (-1.9%), FMCG (-1.8%) were amongst the top losers for the day.

Indiabulls Housing Finance: Maintains healthy cash balance on the balance sheet

Key takeaways from the interview of Mr Gagan Banga, MD Indiabulls Housing Finance; dated 8th November 2019 on CNBC TV-18:

  • Indiabulls Housing Finance (IBHFL) maintains 20% of the balance sheet in cash; covering around the next 12 months liabilities. The cash balance is monitored on a daily basis. IBHFL continues to carry cash at similar levels as Sept-2019 less the amount of buyback done in October and early November 2019.
  • Mr Banga mentioned that in the last 13-14 months, the Housing Finance Companies (HFC) suffered because of the liquidity crisis. The market lost confidence in HFC. IBHFL’s suffering got exaggerated because of the various allegations and the attempt to merge with Lakshmi Vilas Bank.
  • IBHFL’s stakeholders are confident about the solvency with 20% of the balance sheet as cash and a capital adequacy ratio of 29%. Risky perception of the book is due to wholesale lending. However, for the last 10 years; IBHFL’s business has been in line with what the HFC charter permits.
  • In the event of various allegations, IBHFL has subjected itself to diligence. Multiple regulators and agencies have looked at the transactions in question and the overall book of IBHFL.
  • Talking about the governments’ announcement to set up an Alternative Investment Fund (AIF) to help complete the stalled housing projects, Mr Banga mentioned that it is a positive development in the right direction. It may take a couple of months for implementation with the setting up of the fund and the money to start flowing. The lenders and developers are content to see the government thinking of de-clogging the real estate sector.

Consensus Estimate (Source: market screener and investing.com website)

  • The closing price of IBHFL was ₹ 242/- as of 8-November-19. It traded at 0.6x / 0.5x / 0.5x the consensus Book Value for FY20E / 21E / 22E of ₹ 437 / 487 / 475 respectively.
  • Consensus target price of ₹ 467/- implies a Price to Book multiple of 1x on FY22E Book Value of ₹ 475/-.
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21 Sep

Government announcements for housing sector: Steps in the right direction

Dated: 18th September 2019

Update on the Indian Market:

Nifty closed in the red for the 2nd day on Tuesday. It ended 1.7% lower at 10,817 levels. Depreciating Rupee and rising tensions from the attack on Saudi Arabia oil supplies may be the reasons for this decline. Leading the decline were NIFTY Auto (-3.8%), NIFTY Realty (-3.7%) and NIFTY PSU Banks (-3.7%). None of the NIFTY sectoral indices closed positive. Hero Motocorp (-6.3%), Tata Motors (-4.9%), Tata steel (-4.9%) were the worst-performing stocks in NIFTY50 while GAIL (+1.9%), Titan (+0.9%) and HUL (+0.9%) were the top performers.

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Government announcements for housing sector: Steps in the right direction

Excerpts from an interview with Mr Keki Mistry, vice chairman and CEO of HDFC, printed in Mint dated 16th September 2019

·        The government announced setting up of Rs 10,000 cr fund for real estate projects requiring last-mile funding. Another Rs 10,000 cr is expected to come from the private sector.

·        The step is in the right direction and would help huge number of projects that are stuck due to the lack of last-minute funding.

·        Such a professionally managed fund would help the real estate issue to a large extent.

·        The fund is for projects in the middle income and affordable housing category that are 60% complete, are non-NPA and non-NCLT.

·        Today, if the project is NPA and requires the last 10% funding, nobody will be willing to put that 10% as the loan will be straightway classified as NPA from day one. That is why the fund eligibility might be for non-NPA projects. But on the other side, a project that is stuck is stuck because of lack of funds. If there is a lack of money, the builder may not have enough to repay loan instalments. So there is a chance that the project will become NPA. This needs to be looked at more carefully.

·        Non- NPA qualification is hard to understand. IF the builder is not able to complete a project, it is most likely already classified as NPA. There are many projects that have not yet slipped into NPAs and where last-mile funding would help.  

·        The fund could be operational in CY2019 itself, if not certainly in CY20.

·        Combining the government and private monies, a fund of Rs 20,000 cr if additionally leveraged 0.3 or 0.4 times, around Rs 26,000 cr will be available. This amount can take care of a huge number of projects.

·        Many projects will have a small last-mile funding requirement of Rs 50-60-80 cr. With Rs 20,000 cr plus leverage, many such projects can be helped.

·        Government has also proposed to relax External Commercial Borrowing (ECB) guidelines for affordable housing. This route could be a little cheaper than domestic borrowing. It could be a little cheaper than domestic borrowing. More importantly, it will open a new source of funding for some of the companies.

Consensus estimates (Source: Marketscreener website):

·        The share price on 05-09-2019 was Rs 1,996/- per share. It was trading at a P/B of 4.2x/3.8x its book value per share estimates of Rs 479/520 for FY20E/FY21E respectively. The consensus price target was Rs2355 implying P/B target of 4.9x/4.5x for FY20E/FY21E respectively.

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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