Stock Fundamentals

Why you should book profit in Godrej Properties stock

Bavadharini KS BL Research Bureau | Updated on May 29, 2021

At current price of ₹1359.75, the company is valued at one-year forward PE of 86 times which is higher than many peers

Real estate has been witnessing a demand pick-up since the re-opening of the economy last year, post the Covid-induced lockdown.

The release of pent-up demand, the Centre’s push towards affordable housing, State government incentives such as reduction in stamp duty, and low interest rates on housing loans have helped the sector’s cause. On the back of this, Mumbai-based real estate developer Godrej Properties, with its strong execution track record, properties in favourable locations and recognisable brand, has seen bookings (new sales) improve in recent quarters, including January-March period of FY21. The company’s timely launch of projects, in the past, has also been a positive. During FY21, Godrej was able to launch 11 new projects/phases and delivered about 6 million sq ft across three cities against around 5.3 million sq ft in FY20.

The company also has a strong pipeline lined up for the coming quarters, about 19 new projects/phases for FY22 which should translate into steady collections and revenue growth. Further, with residential real estate demand improving, Godrej Properties is well-placed to benefit, given buyers’ preference for quality developers. However, with the second wave of Covid-induced lockdowns across the country, there could be near-term headwinds in terms of project launches and temporary slowdown in demand, particularly residential sales. Some prudence is called for, given the short-term uncertainties.

We gave ‘hold’ on Godrej Properties stock September last year, and the stock has given around 50 per cent gain since then. But at ₹1,355 now, the stock is trading at a one-year forward PE of 86 times (Bloomberg Consensus), higher than that of many realty players in the industry. Hence, investors can book profits partially to cash in on some of the gains while retaining some of the investments, given the company’s good growth outlook for the long term.

Well-placed in residential

For Godrej Properties, residential real estate contributes nearly 90 per cent of revenues. As the residential demand recovered well in FY21 post gradual removal of nationwide lockdowns, the company was able to maintain steady bookings in the past year. It saw an increase of 10 per cent during FY 21 and in FY20 too it had reported an 11 per cent rise in its booking value. Favourable location of properties, besides the Maharashtra Government reducing stamp duty, has helped in this regard.

In terms of collections from projects, they are yet to make a comeback. However, barring the near-term headwinds, with multiple projects at various levels of completion and company’s focussed approach on key cities including Mumbai, Pune, Delhi and Bengaluru, expect to see a turnaround in this aspect. The company has over 30 residential projects at varied levels of construction, which would help revenue growth and improve collections in the coming quarters.

The company’s presence across various residential segments enables it to cater to home buyers of all income categories. For instance, during the June quarter of FY21, when the country-wide lockdown measures were still in place the company was able to register nearly 71 per cent y-o-y growth in bookings, driven mostly by marketing campaigns and online channels, compared to a 9 per cent y-o-y growth during the same period last year.

Project pipeline, financials

The company was able to launch seven new projects/phases across three cities during its recent March quarter, and 11 new projects/phases for FY21.

It has several upcoming projects planned as well. In the residential segment, it plans 19 projects to the tune of about 12 million sq ft in FY22. It also has various joint venture projects. In the commercial segment, which contributes to around 10 per cent of the company’s revenue, Godrej plans around five projects (in joint venture) across key office markets, including Bengaluru, Pune and Gurgaon.

Godrej reported weak earnings during the recent March quarter. Its revenue declined 62 per cent y-o-y to ₹432 crore and adjusted profit too declined 64 per cent y-o-y to ₹37 crore. . The fall in revenue is mainly on account of slower collections, and is likely to recover in future with projects at different stages of completion. According to Bloomberg estimates, revenue is expected to be at ₹1,911 crore in FY22 and profit at ₹441 crore. The company has negligible debt levels, aiding in acquiring lands and pursuing expansion plans.

Why

Relatively expensive valuation vs peers

While well placed for the long term, lockdowns may impact near term performance

Investors could cash in on stock price gains

Published on May 29, 2021

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

  1. Comments will be moderated by The Hindu Business Line editorial team.
  2. Comments that are abusive, personal, incendiary or irrelevant cannot be published.
  3. Please write complete sentences. Do not type comments in all capital letters, or in all lower case letters, or using abbreviated text. (example: u cannot substitute for you, d is not 'the', n is not 'and').
  4. We may remove hyperlinks within comments.
  5. Please use a genuine email ID and provide your name, to avoid rejection.