Nirmal Bang is bearish on Godrej Properties
and has recommended sell rating on the stock with a target of Rs 563 in its January 31, 2013 research report.
“Godrej Properties’ (GPL) 3QFY13 profits were once again boosted by its group companies’ transactions, as expected, and higher margins on account of a better revenue mix, thereby beating our/consensus earnings estimates by 18%/12%, respectively. Operationally, it was weak quarter with pre-sales down 45% QoQ at Rs2.1bn, adjusting for group companies’ transactions and projects where GPL is only a development manager. Gearing level fell to 1.0x in 3QFY13 from 1.1x in 2QFY13 on deferral of payment to Mumbai Metropolitan Region Development Authority or MMRDA (Rs1.4bn) due in December 2012 and inflows from group companies. We have introduced FY15E numbers with revenue/PAT growth estimates of 35%/46%, respectively, rolling forward our target multiple to FY15 financials. We have retained our Sell rating on GPL with a revised target price of Rs563, 1x its NAV
“GPL posted revenue of Rs2.6bn (up 78% YoY and 15% QoQ), broadly in line with our expectations, which included Rs0.94bn of revenue from the Godrej One project (boosted by POCM recognition of 0.58mn sq ft sold so far to a group company). Adjusting for this, revenue was up 2% YoY and 51% QoQ as the Godrej Palm Groove project crossed its revenue threshold limit. EBITDA margin was at 28.2%, above our estimate, on account of a better revenue mix. GPL had reported one-time fee income (Rs150mn) in 2QFY13 and also other income in 3QFY12 was boosted by a private equity deal (Rs180mn). Further, GPL reported higher minority interest of Rs158mn in 3QFY13, as it holds a 60% stake in the Godrej One project.”
“Consequently, PAT grew 24% YoY and 9% QoQ to Rs355mn, above our estimate (Rs 300mn) and consensus estimate (Rs317mn). GPL’s net debt declined by Rs1.1bn QoQ on account of deferral of payment to MMRDA (Rs1.4bn) due in December 2012 for its Bandra-Kurla Complex-Jet Airways commercial project and inflows from group companies towards the Godrej One project. MMRDA has given the flexibility to developers to make payment during the course of construction with an interest penalty of 11% per annum on the deferred amount. GPL is likely to pay its dues (Rs5bn over the next three years) via monetisation of project, either by selling stake or achieving faster absorption of the project, which seems to be challenging in the current environment.”
“GPL stock has underperformed the BSE Sensex/Realty Index by 21%/34%, respectively, over the past one year and we expect this trend to continue on account of higher debt and weak operating cash flow, adjusted for group companies’ transactions. At the current market price, GPL trades at 2.4xP/BV on FY15E earnings and at a 11% premium to our NAV, the highest compared with its peers,” says Nirmal Bang research report.
Public holding more than 90% in Indian cos
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