After being flat for most of the year, the Godrej Properties Ltd (GPL) stock is now in the limelight. Following several project launches, it zoomed 29.4% in the past month, outperforming peers.
Earlier, GPL had indicated it wanted to launch one project every quarter. However, in the last two quarters, it has launched 10 projects. This has enthused investors, who were waiting to see if the company can scale up as indicated. Furthermore, this quarter, it made one of its highest pre-sale of inventory worth about ₹2,000 crore.
In FY19, it had 16 project launches. These were in its target markets of the Mumbai Metropolitan Region, the National Capital Region, Bengaluru and Pune. With this, GPL will develop an additional 11-12 million square feet, twice that of FY18.
“The company has been very aggressive over the last two-three months with respect to new projects. Prima facie, it looks very attractive. Given the momentum of the new launches, we see healthy pre-sales for FY20," says Param Desai, vice-president at Elara Securities (India) Pvt. Ltd.
The new projects are expected to add significantly to the net asset value of the company, which develops properties along with landowners, thus keep its business asset-light.
Larger developers are seeing the business outlook improving, post the implementation of the Real Estate (Regulation and Development) Act, 2016, and the goods and services tax. The liquidity squeeze is also driving smaller builders out of the market, or forcing them to tie up with larger developers.
Most of GPL’s projects are on a revenue-sharing basis. Hence, profitability depends on the launch price, demand for the project and cost-control. Also, revenue sharing varies from project to project.
“We need to monitor the timely execution of these projects because otherwise the management bandwidth will be stretched. Also, we need to monitor the profitability in some of these projects," says Desai.
The company may also have to raise resources to execute these projects. In the December quarter, its debt had increased slightly to ₹1,795 crore, taking the debt-equity ratio up marginally to 0.69%.
Like other developers, GPL has moved to a method that recognizes revenues on completion of projects. This has seen marketing and other costs rise, front-loading expenses relating to new launches. Ebitda margins have been lumpy on a quarterly basis because the company has to incur marketing and other costs, upfront. Ebitda is earnings before interest, tax, depreciation and amortization.
Valuations seem to be a tad over the roof. The GPL stock is quoting at a one-year forward price-earnings multiple of 52.25 times consensus earnings available on Bloomberg. That means investors will have to keep a hawk-like eye on project executions.