Motilal Oswal neutral on Godrej Properties

“Godrej Properties (GPL) reported in-line numbers for 1QFY13. Revenue grew 73% YoY (declined 35% QoQ) to INR2.3b, led by (1) Godrej One, Mumbai (44%), (2) Garden City, Ahmedabad (19%), and (3) Waterside (commercial), Kolkata (14%). EBITDA grew 100% YoY (declined 50% QoQ), while PAT grew 71% YoY (declined 57% QoQ), led by sequentially lower other income and higher effective tax rate. EBITDA margin declined 4.8% QoQ to 17.8%, impacted by other low margin ongoing commercial projects (Waterside, Genesis at Kolkata).”

“Sales volume stood at 0.75msf (INR5b), marginally down QoQ v/s 0.77msf (INR7.7b) in 4QFY12 and up YoY v/s 0.6msf (INR2.3b) in 1QFY12. Average sales prices in Vikhroli, Platinum and Prakriti, Kolkata is up ~17%QoQ, while commercial projects at Kolkata and Chandigarh witnessed drop in realizations. In 1QFY13, GPL launched (1) Serenity, Mumbai and (2) Horizon, Pune. Both the projects witnessed good response with 35% and 40% of the area getting sold during the quarter. Net debt stood at ~INR17.4b v/s INR15.6b in 4QFY12 (up INR1.8b QoQ) - implying net debt-equity of 1.2x. Cost of debt stood at 11.8% against 11.57% in 4QFY12.”

“Sequential improvement in sales in key ongoing projects in Ahmedabad and Kolkata, along with decent offtake in new launches is positive. There has been faster monetization in its old commercial projects, as well over the last couple of quarters. This is encouraging, as these projects have been a major drag on operating margins. Traction in commercial sales would also help in unleashing the significant capital locked in these projects, triggering debt reduction. However, high leverage, owing to several acquisitions, remains an overhang. Going forward, the key challenges would be: (a) success in stated launch plan, (b) execution ramp-up commensurate with acquisitions, and (c) deleveraging. Equity infusion and commencement of BKC, Mumbai projects could be a key positives. GPL is trading at ~23% discount to our NAV estimate, 32.6x FY13E EPS and 2.6x FY13E BV. Neutral,” says Motilal Oswal research report.

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