New project launches to boost H2FY14: Godrej Properties

Godrej Properties is looking forward to better performance in the second half of the fiscal (H2FY14). Pirojsha Godrej, it’s MD and CEO, points to more launches in the pipeline. In Mumbai itself, the company is optimistic of better reception in redevelopment projects in the second half at Chembur, Byculla, and Ghatkopar, he tells CNBC-TV18. New phases of existing projects are also being awaited throughout the country, he adds.

Godrej dismissed market fears of a weak return on equity (RoE) on the back of the Rs 700 crore rights issue. These resources will help in funding for new projects and growth going forward, he elaborates. 

Also read: Godrej Properties Q2 net profit up 5% to Rs 34.25cr

Below is the edited transcript of his interview to CNBC-TV18.

Q: What is the visibility as we head into the second half of the year? What are the new launches that Godrej Properties has lined up? How will that really propel the revenue stream?

A: It certainly has been a subdued environment for the sector in H1FY14. Despite that slowdown, we have been able to register strong growth in both revenues and profits. In H1FY14, revenues are up about 21 percent and our profit, both EBITDA and net profit are up about 50 percent.

Certainly, we are looking forward to getting more launches done in the second half than. We are looking at several launches in Mumbai, especially some of the redevelopment projects which will meet with a very strong reception. We have projects in Chembur, Byculla, and Ghatkopar; all of which will be launched in the second half.

We are also looking at launching new phases in several of our existing projects around the country. I certainly hope to see much more robust sales performance in the second half.

Just one small point to note about the second quarter sales; while it is right that there has been a large drop in the areas sold on a Year-on-Year basis, the corresponding period in the previous year saw a very successful launch of a new project in Gurgaon where we sold about a million square feet in a single day. If you remove that one project the sales were about flat for the quarter.

Q: The stock has corrected almost 40 percent since May after that Rs 700 crore rights issue was approved by the management. There are fears in the market that it will strain the company's already weak Return on Equity (ROE). Can you tell me exactly how you have deployed this Rs 700 crore that you have got from the rights issue?

A: Of course these funds will be used for a variety of purposes. One is to reduce debt. The net debt of the company has reduced. We feel there is a bit opportunity in the current environment to look at adding new projects to our portfolio.

Given the general weakness and liquidity pressures that many developers and landowners are facing, there is an opportunity to add new projects at attractive valuations.

So, the focus for the company and the reason we raise these funds is really to fund our ongoing growth and to do it in a manner that allows us to both continue growing robustly but also does not in anyway stretch our balance sheet.

If you look now at our debt-equity ratio for instance at the end of the quarter we ended with a debt-equity ratio of about 0.56:1, which is substantially lower than it has been in the recent past and as recently as a couple of years ago that number was about 2:1.

Q: What about interest costs? You have brought down your debt this quarter, but going forward how much do you think interest costs will come down? It has eaten into your profitability quite a bit. Can you give us some specific numbers?

A: I slightly disagree on the quantum of our current debt being at all challenging for the company of our scale. Our net debt is at Rs 1,260 crore and the servicing of that interest is going to be a very small component of our year end EBITDA in the current financial year.

Our borrowing costs are about the lowest in the industry and have reduced by quarter-on-quarter and year-on-year. Our average borrowing cost currently is 11.3 percent. So, I do not think that we feel we are under any kind of liquidity pressure or reduce our debt further.

The rights issue has greatly strengthened our balance sheet and the focus now will be on executing smartly, generating as much cash as we can from existing projects through launching deals, but also on continuing to invest smartly to secure our future growth.

Q: What is the update currently on Bandra-Kurla Complex (BKC) project? How much have you sold? What is the booking value and is the project on schedule?

A: That project is going on in full swing. Construction was actually a little ahead of schedule which is good to note. We have now sold just under 200,000 square feet in the project since we launched the project. We have a booking value currently of about Rs 500 crore.

Our target was to achieve about 200,000-250,000 square feet of sales on an annual basis. That has almost been achieved already in the first six or seven months.

We are certainly seeing a lot of interest from major institutions who are drawn to moving into BKC who believed that this project given the kind of quality we are emphasizing both in terms of design, sustainability, location and so on is the right one for them.

We have been reasonably happy with the response so far, but of course this is a project where we will see ongoing leasing and sales for the next 3-4 years.