Hold Godrej Properties; target of Rs 748: Edelweiss

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Edelweiss' research report on Godrej Properties

Godrej Properties (GPL) posted strong Q2FY18 numbers with: (a) robust sales—H1FY18 new sales at ~INR28bn, ~40% higher than entire FY17; (b) healthy project addition (17.3msf YTD versus 18.1msf in FY17); and (c) sales pick up in legacy BKC project, which will aid cash flows. We believe, GPL’s operations will continue to scale up aided by its strong brand, diversified land bank and ability to augment project portfolio via partnerships. Moreover, we envisage project addition momentum to accelerate, propelled by RERA, with GPL likely to be the preferred partner of smaller developers owing to its extensive experience in the partnership model. We revise our TP to INR748/share (INR520 earlier) due to improving growth prospects and lower capital costs. Maintain ‘HOLD’.

Outlook

We expect GPL to continue to expand its project portfolio. Post RERA, the company should benefit from smaller developers looking to tie up with prominent players to ensure better sales momentum and timely completion; the company’s strong track record of striking partnerships will help it in this regard. We factor in improved prospects of portfolio expansion (assumed ~30msf over FY18), narrow the discount to our NAV and lower our discount rate (due to falling interest costs) to arrive at revised target price of INR748. While we are bullish on GPL’s prospects, the recent run up in the stock has capped upside in the near term. Hence, we maintain ‘HOLD’.

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