Godrej Properties lands a robust Q4 but covid-19 infects growth

The benefits of Godrej Properties Ltd’s (GPL’s asset-light strategy were visible in its March quarter results. Notwithstanding a slowdown in home sales due to covid-19, the firm’s pre-sales (bookings) of housing units rose 10% year-on-year for the quarter. A large portion of this accrued from seven projects launched across major cities.

The firm generated ₹480 crore cash surplus, which was the highest in eight quarters. “An asset-light, partnership driven model has always been the focus of Godrej Properties’s way to acquire new projects. With industry in consolidation mode, Godrej Properties has added about 91 million square feet of projects across top-cities over FY17-20, expanding its portfolio by 82%,” analysts at Jefferies India Pvt. Ltd said in a note to clients.

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GPL has used strategies such as joint development, joint venture and management projects, to drive growth in the last few years. The move was timely as it acquired projects when the residential market was rife with challenges after demonetization and introduction of goods and services tax. “The firm continues to aggressively pursue this counter-cyclical land banking strategy and added 10 new projects in FY20,” said Adhidev Chattopadhyay, analyst at ICICI Direct Research, in a results review.

However, the complete lockdown will reflect in lower demand for homes and pre-sales from the June quarter onwards. Brokerages are worried about the impact of repetitive lockdowns delaying project cash flows and delay in key project launches on sustained growth in bookings.

“While FY20 sales bookings were in line with our estimates, we have cut our FY21-22E sales volume estimates by 30% each to ~9-10 million sq. ft,” he says.

Consumer discretionary spending is likely to stay weak, impacting home sales in the near-term. “Godrej Properties’ management highlighted that cash-flows and sales have been severely impacted by covid-19 although with construction stopped, outflows are also low,” said Jefferies India in its report. It would take a few quarters for construction at various sites to revert to normalcy, it added.

This has already weighed on investor sentiment. In spite of its strong balance sheet with a net debt: equity ratio of 0.2, the stock is down 50% from early-February level.