Godrej Properties: Visible Growth Ahead?

Godrej Properties Limited is a real estate company with its head office in Mumbai, India. A subsidiary of Godrej Industries Ltd, the company was established in 1990 under the leadership of Mr Adi Godrej.

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• Executive Board of Directors
• Shareholding Pattern
• Projects of Godrej Properties
• Market share increase over the years
• Key Operational parameters & performance over years
• Region market share gain by Godrej Properties
• Key Balance Sheet strengths
• Financial Performance Highlights
• Management Outlook & Concall highlights
• Growth Opportunities & Risks/Concerns

In 2010, Godrej Properties became a publicly listed company through a successful IPO in which it raised USD 100 million. The company is one of India's only national developers with a strong presence across the country's leading real estate markets.

In the financial year 2016, for the first time, Godrej Properties was India's largest publicly listed real estate developer by sales value having sold over INR 5,000 crore of real estate that year.

About Godrej Group

Established in 1897. The Godrej Group comprises of a varied business portfolio that includes real estate development, fast moving consumer goods, advanced engineering, home appliances, furniture, security, and agri-care. While a large number of businesses are privately held. The combined market cap of publicly listed entities is in excess of USD 15 billion.

Godrej is ranked as the 2^nd most trusted Indian brand, an annual revenue of USD 5 billion and an estimated 1.1 billion customers across the world that use one or another Godrej product every day. Moreover the Godrej Group is amongst India's most diversified and trusted conglomerates.

(A) Executive Board Members of Godrej Properties

(i) Mr. Adi Godrej - Chairman Emeritus

Adi Godrej is the Chairman of the Godrej Group and is Chairman Emeritus of Godrej Properties. Under his leadership, the Godrej Group has been one of the most successful and respected conglomerates in India for many decades. Adi is a recipient of the Padma Bhushan Award, one of India’s highest civilian awards, from the Government of India. He received his Bachelors degree in Engineering and an MBA from the Massachusetts Institute of Technology (MIT).

(ii) Mr. Pirojsha Godrej - Executive Chairman

Mr. Pirojsha graduated from the Wharton School of Business in 2002, completed his Masters in International Affairs from Columbia University in 2004, and an MBA from Columbia Business School in 2008. Mr. Pijorsha joined the company in 2004 and subsequently became an Executive Director in 2008. After that he became CEO of the company in 2012.

He is also Executive Chairman of Godrej Housing Finance, and Godrej Fund Management and a Non-Executive Director at Godrej Consumer Products and Godrej Agrovet.

Total Remuneration of Mr. Pirojsha Godrej is INR 7.35 crore (down by 43% from FY20) which is 0.96% of net sales for FY21.

(iii) Mr. Mohit Malhotra - Managing Director & Chief Executive Officer

Mohit holds a Post Graduate Diploma from the Indian Institute of Management, Calcutta. He started his career in Unilever India, subsequently worked with AT Kearney. Further he has been working in real estate industry since 2006 and joined Godrej Properties in 2010.

He joined GPL as head of business development and subsequently took additional role at NCR region where he led Godrej Properties to become No 1 player in the NCR market. He continued to take on key leadership responsibilities and became the CEO in 2017.

Remuneration of Mohit Malhotra is INR 47.18 cr (including long term incentives) which is 6.17% of net sales for FY21.

(B) Shareholding Pattern

Mutual Funds hold 3.83% of total shares of Godrej Properties Ltd. Foreign portfolio investor hold 27.89% of the total shares of Godrej Properties Ltd.

Promoters shareholding in the company reduced from 64.44% in Dec-20 to 58.44% in Mar-21.

Promoters holding in the company has been decreased over the last 10 years from 75% to 58%. On the other hand the FPI holding has increased from 9% in 2015 to 28% in 2021. Mutual Funds holding has also increased in the company.

(C) Projects of Godrej Properties

Residential Projects

The company has 21 completed residential projects across pan India. Moreover the company has 28 current residential projects across various cities of India. The residential segment contributes around 90 % of the company's total revenue.

Commercial Projects

The company has 7 completed commercial projects and 2 current commercial projects across Pan India.

(a) Market share of Godrej Properties

(b) Godrej Properties Development Pipeline

• GPL has strong project pipeline. Over FY17 the company added various new projects encompassing a saleable area of ~94.3 mn sqft. This shall be launched over the next 5-8 years. The landbank addition is mainly in Top-4 focused regions viz. NCR, Pune, Bengaluru and Mumbai.

(c) Robust Sales ; Rising Share in key cities

Sales Value of projects in FY21

• Godrej Properties sold 3,602 homes during the Q4 FY21 with an area of 4.2 million square feet, and value of Rs. 2,632 crore, representing a quarter-on-quarter value growth of 77% and a year-on-year value growth of 10%.
• This ensured the FY 2021 sales was 9,345 homes with a total area of 10.8 million square feet value at Rs. 6,725 crore (Booking Value). Which was certainly the highest in GPL's history, representing a growth in value terms of 14% and in volume term of 23%.
• Company has strong brand pull, robust on-ground execution, and tie-up for landbanks at client centric locations. As the company plans to double its presales value over the next 2-3 years, it will be backed by market-beating launches and shift towards higher-value products.

Management is currently focusing on Increasing market share in top most real estate markets that are Mumbai, Pune, Bangalore and NCR. As major part of the country real estate business comes from these key markets. Thus management wants to be focused on these metropolitan cities. In addition management showed their interest in entering Hyderabad market as well.

Over FY17-1HFY21, GPL has added ~94.3 msf of saleable area, all in top four micro-markets viz. NCR, MMR, Pune and Bengaluru.

(d) Strong Balance sheet

There is steady decline in Debt / Equity Ratio to 0.54x as on FY21, below management guidance of 1x. Moreover, the company has lowest bank funding rate in the sector. Thus strong financial position and lowest bank funding rates in the sector are key competitive advantages for Godrej Properties.

(e) Launch Tracker

The launch timings of the realty projects mainly depends upon the receipt of regulatory approvals. Thus these timings can be delayed substantially beyond initial expectations. However the company recorded very Strong response to new project/phase launches.

• In March 2021 Godrej woods was launched in NCR. Total sales stood at 493,156 sq. ft. with a booking value of INR 509 crore.
• Godrej Green Vistas, Pune launched in February 2021. Total sales stood at 492,731 sq. ft. with a booking value of INR 302 crore.
• Godrej Woodland, Bangalore launched in March 2021. Total sales stood at 753,722 sq. ft. with a booking value of INR 258 crore.
• Godrej Upavan, MMR launched in January 2021. Total sales stood at 256,293 sq. ft. with a booking value of INR 166 crore.
• Godrej Wood Park, Pune launched in February 2021. Total sales stood at 267,836 sq. ft. with a booking value of INR 141 crore.
• Godrej Urban Park, MMR Launched in March 2021. Total sales stood at 56,597 sq. ft. with a booking value of INR 93 crore.
• Godrej Parkridge, Pune launched in March 2021. Total sales stood at 106,181 sq. ft. with a booking value of INR 59 crore.

(D) Financial Parameters

• The launches in FY21 did very well, with total sales value of Rs. 2,175 crore during the year, management especially pleased with the sales from existing inventory, which grew by 46% to Rs. 4,550 crore in financial year 2021.
• Net sales of the company stood at 765 crores for FY 21. Moreover, the company reported net loss for FY 21.
• Due to lockdown in various cities the revenue of the company affected. Because of construction distribution faced by the company in 1H FY21. The management expects earnings to normalize in financial year 2022 and to sharply grow in financial year 2023, given expected project completions that year.
• In Q4FY21 the company reported loss of 191.62 crores according to management the loss was basically due to three one-time charges to the P&L relating to provisions.
  • The first of these charges was the long-term incentive scheme payable to certain employees in financial years 2023 and 2024, subject specific parameters being met. This amounted to Rs. 121 crore and was taken in FY 2021 basis prudence and high likelihood of these parameters being achieved.
  • The second of these charges amounted to Rs. 81 crore and was required due to the shift to the new tax rate, which required remeasuring our deferred tax assets.
  • The last of the charges was due to a write-down in the legacy project of the company, including Godrej Prakriti in Kolkata, Godrej Palm Grove in Chennai, and Godrej Alpine in Mangalore amounting to Rs. 76 crore. Excluding these one-time travel to the P&L, adjusted EBITDA stood at Rs. 125 crore and net profit would have stood at Rs. 37 crore in the fourth quarter.

(E) Real Estate Industry Overview

The real estate market in India is one of the pallbearers of the economy, it is the second-highest employment generator in the country after agriculture. The sector is deeply interlinked to as many as 220 allied sectors. It accounts for nearly 6-7 per cent of the economy and is set to account for nearly 13 per cent by 2025 if all reform measures announced are executed well. Moreover The sector has been one of the biggest wealth creators in the past few decades. 

After temporary shocks in light of structural reforms such as GST and RERA, the enhanced liquidity in the banking system and a restoration of buyer confidence were slowly trickling through in the real estate sector before COVID-19 hit Indian shores. Therefore, the pandemic-influenced slump is, at best, a short-term blip across all sectors of the economy. With the rollout of the vaccine and resumption of normalcy, the real estate market will certainly bounce back with renewed vigor.

(F) Management Outlook & Concall Highlights Q4 FY21

(i) Capital Raising

• In March 2021, Godrej Properties successfully raised Rs. 3,750 crore, which certainly is the largest QIP by any real-estate company in India. According to management, this equity raise was specifically timed to take advantage of a likely cyclical upturn in the real-estate sector, and the proceeds will be used to fund exciting growth opportunities and to buy new land ahead.
• Raised INR 1,000 crore in Q1 FY21 through unsecured, redeemable, NCDs on a private placement basis for a term of 3 years at 7.5%, lowest rate by a residential developer in India.

(ii) Highest ever cash collection In Q4 FY21

Q4 FY 21 was GPL's best ever quarter on many parameters. The highlight of Q4 results was the highest ever cash collection of over Rs. 2,000 crore, which included collections of Rs. 214 crore from projects where GPL is the development manager. These collections led to a strong net operating cash flow of Rs. 785 crore. Moreover management have been able to generate the highest ever residential collection of Rs. 4,389 crore in FY 2021, despite the tremendous disruption in construction activity in the first half of the financial year, when the company were able to collect only Rs. 1,115 crore.

(iii)  Tops in sales bookings for FY21

Godrej Properties becomes country's largest listed real estate developer in terms of sales bookings during the last fiscal year as it clocked a record pre-sales of Rs 6,725 crore despite pandemic. The company reported 14% rise in sales bookings to record Rs 6,725 crore during the last fiscal as against Rs 5,915 crore in the 2019-20 financial year.

(iv) Focusing on New Launches

• The company launched seven projects during the fourth quarter of FY 21 and received a strong response to all of them. The project Godrej Woods in Central Noida delivered sales worth over Rs. 500 crore during the launch quarter, making it one of the most successful launches in India in the financial year 2021.
• In addition it sold more than 1.5 million square feet with a booking value of over Rs. 1,300 crore in each of our focus markets of Mumbai, Pune, NCR and Bangalore. In addition there are number of projects that management hope to launch during the FY22. These includes both new projects as well as new phases of our existing project.
• Beyond what mentioned in the presentation, GPL also have several other projects where approval timelines are somewhat uncertain. So management have kept them out of the guidance company have provided.
• But Management do continue to hope and expect to launch them during the FY 22, including new phases.

(v) Other Key Highlights

• Land Acquisitions strategy
  • Management wants to pursue blended model which includes buying new lands also contrast with its earlier strategy of following an asset-light model where most projects were under JDA, joint venture (JV) or development management agreement (DMA) model. However the company will continue to enter into JV/JDA deals, number of projects under the DMA model are expected to moderate going forward.
• Management want to increase the market share in key development markets which are Mumbai, Pune, Bangalore and NCR. In addition management wants to enter in new markets mainly in Hyderabad as management is optimistic for opportunities in those markets.
• Residential sector contributes around 90% to the revenue and the rest is commercial sector. Further management wants to remained focused in residential sector only.

(G) Opportunities and Strengths

(i) Established brand name and strong market position

Godrej Properties, operating in 11 cities, had delivered around 375 lakh sq. ft of projects as on September 30, 2020. Strong execution capabilities are reflected in quality construction and delivery track record of around 250 lakh sq. ft in the last six years itself. Strong brand and execution track record helps achieve healthy pre-sales.

(ii) Effective Land Sourcing Model

GPL has Competitive advantage in executing joint development projects. Moreover the capital efficient and high ROE development model is also a key strength of the company.

(iii)  New Post-Covid Era Dawns

India’s property market, currently battered by plunging sales, piling inventory, stagnant-to-falling prices and an acute liquidity crisis, is now primed for consolidation and today, that is the big theme for the top players, who are equipped with money, ethics, knowhow and technology.

This development will strongly benefit the real estate sector and put it on a strong course of recovery. The residential real estate sector, buoyed by high demand for affordable housing, will bounce back strongly as homebuyers. As they will look to invest in quality homes from renowned developers. Moreover As these big players bring along a strong portfolio and a proven execution track record, they will be able to cater to the demand and chart the recovery story of the real estate sector.

(iv) Strong parentage enhances financial flexibility

GPL has signed a memorandum of understanding with various group entities to develop land parcel under the DMA model, which provides long-term business visibility. GPL derives significant synergies from its association with the Godrej brand. Further, GPL has financial flexibility to refinance debt at low cost because it is a part of the Godrej group, as has been demonstrated in the past.

(v) Better positioned against peers to gain from consolidation trend

GPL has a hawk-eye on residential development and over a short period has established a brand name in key micro markets. NCR, Pune, Bengaluru and MMR are key markets for residential demand. On the other hand other players have a dominant regional presence with aspirations for diversifications in these markets.

(H) Key Risks/Concerns

(a) Regulatory Hurdles

Unfavorable changes in government policies and the regulatory environment can adversely impact the performance of the sector. There are substantial procedural delays with regards to and acquisition, land use, project launches and construction approvals. Retrospective policy changes and regulatory bottlenecks may impact profitability and affect the attractiveness of the sector and companies operating within the sector.

(b)Exposure to inherent cyclicality

Cyclicality in the real estate sector could result in fluctuations in cash inflow and volatility in sales. Any decline in demand for ongoing projects could result in lower collections and impact cash flows.

(c) Unanticipated delays in project approvals

The delay in project completion is red flag for realty companies. Thus it is very essential for these companies to complete the project in said time. But various unanticipated delays act as an hindrance in timely project completion which is certainly a risk.

(I) Other Major Players in Indian Realty Sector

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The company has residential, commercial, and retail properties in 15 states and 24 cities.

Oberoi Realty Ltd. is one of the leading real estate development company, headquartered in Mumbai.

In the real estate space, Oberoi Realty is an established brand with an impeccable track record. Its primary aim is to build aspirational developments for its customers with distinctive designs, functional aesthetics and quality finishes. That translate into landmark projects through its mixed-use and single-segment developments.

Sunteck Realty Limited (SRL) is a Mumbai-based real estate development company, catering to the ultra-luxury and luxury residential segment. It is the leading real estate companies in Mumbai.

SRL boasts of a city-centric development portfolio ofabout 30 million square feet spread across 25 projectsat various stages of development. It is one of the top real estate companies in India.

It one of the most trusted real estate companies in Mumbai with breathtaking luxury properties in Mumbai.

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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry's Publications.

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