Godrej Properties management reiterated confidence on medium-term growth as it targets pre-sales to rise 50% by FY23. Near term, the second wave has led to reduced sales velocity and a 25% loss in labour force, though operational impact should be lower than 2020. Jefferies trimmed its FY22 pre-sales forecast by 13%, but still expected a record year. A net cash balance sheet and strong customer franchise make Godrej Properties well-placed to benefit from the housing upcycle. Jefferies says it maintains Buy rating on the stock.
In its report, Jefferies says Godrej Properties’ strong new launches in 2HFY21 (5.9m sf vs. 1m sf in 1HFY21) led to the company recording 14% YoY pre-sales growth to a record Rs 67 bn in FY21. Godrej Properties Management was expecting FY22 pre-sales to grow 20%+ prior to the second wave, and it believes that while the intensity / duration of the second wave is yet to be fully known; Godrej Properties may still be able to grow its FY22 sales. Jefferies built in Rs 80 bn (+19% YoY) for FY22. Further, Godrej Properties expects that its strong project pipeline and the revival in housing market should drive pre sales above Rs 100 bn in FY23
In its post-results call, Godrej Properties management said that while the second wave has caused a deceleration in sales, its overall impact is unlikely to be as high as the first wave in 2020. Construction has not stepped, though worker count is down 25% from peak levels, much better than the 75% decline seen during 1HFY21. Godrej Properties is giving incentives to contractors for retaining workforce and measures are working. Cash collections are also holding up to the extent of demand raised, i.e., no noticeable pressures on customer inflows yet, highlight Jefferies.
Jefferies says Net QIP inflows of Rs 37 bn has led to net cash of 5.8 bn, making Godrej Properties net debt free for the first time since listing. Management expects to deploy the QIP proceeds in new project acquisitions over FY22-23. It sees a strong project pipeline and will target its recent mix of higher city-centric, larger stakes in the projects going forward. Management expects pre-sales potential to rise by 50% once the balance sheet headroom is utilized.
Incorporating management commentary and second wave impact, Jefferies has cut FY22-23 pre-sales projects by 13%/4%, but still expect a 23% pre-sales CAGR over FY21-24E to Rs 125 bn. The labor shortage driven construction delays drive 6%/5% cuts to FY22/23 earnings. Profitability should improve significantly from FY23 onwards as the better quality projects from FY18 get delivered. Jefferies says it maintains Buy with Godrej Properties remaining best placed to benefit from housing cycle.