Godrej Properties

Godrej Properties Limited (GPL) is a leading player in India’s residential real estate market. In 1987, it became a part of the Godrej Group and in 1989 it became a subsidiary of Godrej Industries Limited, which holds 47.34 per cent of the company’s equity share capital as of March 31, 2024. The company operates in 11 cities and the majority of its revenue comes from four regions, namely, Delhi NCR, Mumbai Metropolitan Region (MMR), Bengaluru and Pune. GPL recorded the highest booking sales by a listed entity in FY24 of ₹22,527 crore. GPL operates with an asset-light business model, entering into agreements with landowners, developing projects, and earning a certain percentage of revenue generated from these projects, rather than directly acquiring land. In the latest FY24, GPL launched 26 new projects or phases across seven cities.

Financials
Godrej Properties Ltd. reported the highest-ever yearly sales of ₹4,362 crore for FY24, displaying a staggering growth of 45 per cent from the previous year. Whereas, the net profit generated by the company stood at ₹725 crore, demonstrating a 27 per cent YoY increase. The company also registered the highest-ever annual collection and net operating cash flow of ₹11,436 crore and ₹4,334 crore in FY24, respectively.

Q4FY24 Result
In Q4FY24, the company recorded the highest quarterly sales for three consecutive quarters. The quarterly sales stood at ₹1,930 crore. The quarterly net profit on a YOY basis increased 14 per cent to ₹471 crore. Looking at the region-wise breakdown of the quarterly revenue, NCR accounted for 44.46 per cent of the sales, followed by MMR at 29.05 per cent, Pune at 11.92 per cent, Bengaluru at 10.92 per cent, and other regions at 3.64 per cent.

At the start of FY24, the management had guided booking sales to be around ₹14,000 crore for FY24. However, the company overshot the guidance number, achieving booking revenue of ₹22,527 crore for the year. Now, for the current fiscal, the management is guiding 20 per cent growth in booking revenue at around ₹27,000 crore. Cash collection stood at ₹11,436 crore compared to the guidance of ₹10,000 crore. For FY25, the management estimates cash collection to be ₹15,000 crore. Regarding deliveries, Godrej Properties handed over possession of 12.5 million sq. feet of area to its property buyers, and for FY25 it expects to hand over 15 million sq. feet.

The net profit margin declined for the company. However, other profitability ratios such as EPS and ROE showed significant positive growth in FY24. Regarding leverage ratios, as the company reduced its debt on the balance-sheet, the debt to equity and interest coverage improved.

Group Split Update
On April 30, 2024, Godrej Group announced its split into two entities – Godrej Industries Group (GIG) and Godrej Enterprises Group (GEG). Godrej Industries Group includes the listed companies, namely, Godrej Consumer Products, Godrej Properties, Godrej Agrovet and Astec Lifesciences Ltd. Godrej Enterprises Group includes the unlisted companies of Godrej Group. Adi Godrej and Nadir Godrej will oversee GIG, while Jamshyd Godrej and Smita Crishna-Godrej will manage GEG.

Land Issue
In the 1940s, Pirojsha Burjorji Godrej had purchased over 3,400 acres of land in the Vikhroli suburbs of Mumbai. This land was always under the ownership of Godrej & Boyce Manufacturing Company Limited. As the Godrej Group family settlement was going over the years, the market was speculating Godrej Properties to get partial, if not full ownership of the land under the new family structuring. However, on April 30, 2024, under the family group settlement, it was made clear that the whole ownership of the land would remain under Godrej & Boyce.

However, realty experts believe that the majority of this land parcel falls under ecologically sensitive mangroves. Furthermore, an additional 300 acres is encroached and only about 1,000 acres is developable land. The settlement also confirmed the continuation of the MOU signed between Godrej Properties and Godrej & Boyce back in October 2021. According to the MOU, Godrej Properties would hold developing rights for lands owned by Godrej & Boyce in various regions across India including the Vikhroli land.

Under the MOU, Godrej Properties is entitled to receive 10 per cent of the money received from the sales of units as a development manager fee, while bearing all costs related to the project management, sales and marketing. After the settlement announcement on April 30, the shares of Godrej Properties fell more than 4 per cent in the following trading session. However, after posting stellar Quarterly Results by the company late Friday, the shares rallied more than 9 per cent on May 6, trading almost 6.5 per cent above the pre-settlement announcement price.

Strengths
With the backing of a strong parentage, Godrej Properties operates with a margin of safety, ensuring resilience against uncertainties that may arise in the future. The company has demonstrated a strong ability to collect cash from the business operations. Its strong, continuous growth instils confidence in its prospects.

Growth Triggers
The interest rate hiking cycle is about to change which might help the real estate industry to flourish in the near to long term. A decrease in interest rate reduces the loan rate charged by the banks to purchase real estate property. Increasing middle-class income would act as a tailwind for the industry as a whole. The government’s continued support for housing will surely help the business to grow.

Potential Risk
The real estate market is cyclical in nature and sensitive to macroeconomic factors which might change quickly, thereby affecting the performance of the company.

Conclusion
Despite not getting the Vikhroli land parcel as against market speculation, we believe that there will be no significant impact on the company fundamentals moving ahead. The company is well-positioned within the real estate market with significant leadership in the residential segment. With strong parentage, a strong record of operational performance, and favourable industry tailwinds, we recommend buying the stock for the long term.