Godrej Properties on solid growth foundation amid strong pre-sales

Godrej Properties (GPL) reported strong pre-sales of Rs 22,500 crore in FY24, up 84 per cent year-on-year (Y-o-Y).

The performance was led by new launches, which increased 65 per cent to Rs 23,000 crore in FY24, and contributed 70 per cent to total pre-sales.

The sales volume increased 31 per cent Y-o-Y to 20 million square feet (msf), while realisation rose 40 per cent Y-o-Y, driven by contribution from high-realisation markets of National Capital Region (NCR) Delhi and Metropolitan Mumbai Region (MMR) and positioning in the premium segment.

The pre-sales in the National Capital Region (NCR) tripled to Rs 10,000 crore, driven by a similar amount of new launches, and contributed 45 per cent to total bookings.

Pre-sales in MMR rose 2x to Rs 6,500 crore, led by Rs 8,800 crore of launches.

The guidance is for 20 per cent pre-sales growth in FY25, which may be sustainable in the medium term.

The management has guided for pre-sales of Rs 27,000 crore in FY25, which implies Y-o-Y growth of 20 per cent.

Project inventory is just seven months, hence launches will again be a key driver in FY25.

The company is aiming to launch projects worth Rs 30,000 crore in FY25 across NCR, MMR, Bengaluru and Pune, as well as the recently entered Hyderabad market.

The launch guidance incorporates 10 per cent of slippages and only considers the initial phase of most projects (40-50 per cent of total project size), and based on the response, GPL can release more inventory.

Therefore, guidance may be conservative. In the medium-term, guidance is that 20 per cent may be sustained due to a project pipeline of 100 msf valued at over Rs 1.2 trillion.

Pune, Bengaluru and Hyderabad will drive growth in the near term in contrast to the prior two years when it was NCR and MMR.

GPL looks to scale up its launches in Bengaluru to Rs 5,000 crore in FY25 (vs. Rs 1,800 crore in FY24), Rs 3,700 crore in Pune (vs. Rs 3,200 crore in FY24) and Rs 2,700 crore in Hyderabad and Kolkata (vs. Rs 1,200 crore in FY24).

It will have three to four years of pipeline in Pune, Bengaluru and MMR and less than two years of pipeline in NCR.

Strong growth in pre-sales was also matched with improvements in cash flows as GPL reported the highest-ever operating cash flow (OCF) of Rs 4,300 crore, up 23 per cent Y-o-Y.

GPL spent Rs 5,400 crore on land investments, leading to an increase in net debt to Rs 6,200 crore or 0.6x of D/E (debt-to-equity).

It has guided for a new project addition target of Rs 20,000 crore.

As pre-sales rise, OCF may almost double to Rs 8,000 crore by FY27, which will support higher spending on business development.

GPL will generate surplus cash flows from FY26 onward, holding net debt to Rs 8,000-8,500 crore.

In aggressive business development, GPL signed up projects with saleable area of 55 msf and revenue potential of Rs 60,000 crore during FY22-24.

That is paying off as it has launched projects at average 19 per cent higher realisation than the underwriting price.

Given fully-owned projects, consistently rising Ebitda margins are visible.

The Ebit (earnings before interest and tax) margin was 27 per cent in FY24, which was significantly higher than historical performance, and the management sees scope for improvement.

Given healthy demand, the management is confident of delivering consistent growth.

Rising cash flow and Rs 3,000 crore of cash on the balance sheet will support higher spending without stressing out the balance sheet.

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