Godrej Properties’ robust pre-sales offset debt drag

In Q4, Godrej plans to launch projects and phases spanning around nine million square feet. Photo: Mint
In Q4, Godrej plans to launch projects and phases spanning around nine million square feet. Photo: Mint

Summary

  • Net debt rose to 6,903 crore at the end of December from 6,174 crore at the end of September, thanks to increased business development activities in recent quarters.

Godrej Properties Ltd is on the way to exceeding its target of 14,000 crore for bookings in FY24, thanks to a healthy launch pipeline. In the nine months to December, pre-sales stood at 13,008 crore. Eight new launches contributed significantly to bookings in the third quarter, leading to the highest-ever quarterly bookings of 5,720 crore, beating analysts’ estimates.

In Q4, Godrej plans to launch projects and phases spanning around nine million square feet. The Gurugram Sector 189 project, a project in Noida sector 149, the Kandivali project in the Mumbai Metropolitan Region, and a project in Bengaluru could be launched during the quarter.

The company has deferred the launch of the Ashok Vihar project to the first half of FY25. Considering the ongoing demand trend in the National Capital Region, Godrej is looking to launch at least one project in the region each quarter, and the management hopes to clock more than 5,000 crore in pre-sales in Q4.

On the flip side, debt continues to climb thanks to increased business development activities in recent quarters. Net debt rose to 6,903 crore as of the end of December from 6,174 crore at the end of September, leading to an increased net-debt-to-equity ratio.

“Management expects net operating cash flow to trail land payments in Q4FY24 (leading to debt build-up). Improvement in cash flows shall be a key re-rating trigger in our view," said a report by Nuvama Research. The management is confident of achieving its FY24 cash collections guidance of Rs10,000 crore.

For now, the management aims to take a more calibrated approach to business development activities by focusing on markets where the company does not have a presence, and those which are seeing a rapid churn in inventory. Against this backdrop, the company’s gross development value (GDV) potential for the first nine months of FY24 stands at 8,425 crore. In FY24, the company hopes to add 15,000 crore of GDV.

The pace of new launches and pre-sales trajectory are crucial differentiators for real-estate companies. Thus, a potential dampener for investors in Godrej Properties could be delayed exhaustion of unsold inventory, which could hurt cash flows. Analysts at Kotak Institutional Equities are pencilling in 15,800 crore of pre-sales in FY24. While the research firm is encouraged by the company’s improved disclosure on project details, it cautions investors about unsold inventory worth 1 trillion in ongoing and upcoming projects.

The stock had a muted reaction to Q3 earnings, but has rallied nearly 15% so fat this year. A significant increase in the stock price hinges on how the factors discussed above play out in the coming quarters.

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