Morgan Stanley has remained overweight on Godrej Properties shares with a target price of Rs 433 on strong brand equity, geographic diversification, potential to unlock value from project/land acquisitions and reasonable valuation. The stock is trading at 26 percent discount to net asset value, it feels.
The Mumbai-based real estate firm, on March 15, has announced acquisition of 7.5 acres of land (0.8 million square feet saleable area, residential) in North Bangalore for a consideration of Rs 60 crore.
Given high IRR (internal rate of return), the brokerage house views this deal favorably, and it thinks this could lead to bigger investments in the quarters ahead (especially as capital gets released from commercial assets).
The site is located on Bellary Road (NH-7), which is a prominent residential area having close proximity to commercial and industrial catchments, along with good connectivity to international airport. The company plans to launch this project in second half of next financial year.
Morgan Stanley says assuming Rs 5,500 psf (per square foot) average selling price, it estimates Rs 420 crore in sales potential for this project. Assuming construction cost of Rs 2,500 psf and 5 years for project completion, it estimates the project's net asset value at Rs 60 crore, implying Rs 3 per share net asset value (around 1 percent of current market price).
Although the size of the investment is small and may not materially change the net asset value, the project appears to have an attractive IRR of 25 percent, the research firm feels.
It says though the investment size is small, Godrej Properties has for the first time in recent times shifted its strategy from a partnership model (joint development agreement, joint venture etc) to an outright land purchase method to add new projects.
At 12:02 hours IST, the stock was quoting at Rs 392.40, up Rs 15.30, or 4.06 percent amid high volumes on the BSE.