Should Godrej Properties be a part of your portfolio? A Primer on the Stock

“We remain confident of meeting our annual bookings guidance of INR 14,000 crores. We delivered 4.9 million square feet for the quarter across all regions. This indicates 39% alone, setting us up well to meet our annual target”

Mr Pirojsha Godrej, Executive Chairperson

Stock data

Ticker	GODREJPROP
Exchange	BSE and NSE
Industry	Realty

Price Performance:

Last 5 days	+1.16%
YTD	+29.04%
Last 1 year	+29.66%

Company description:

Godrej Properties Limited is a leading real estate development company in India. It is a subsidiary of the renowned Godrej Group, which has a long history of over 120 years in various industries. Godrej Properties was established in 1990 and has since emerged as one of the most trusted and respected names in the Indian real estate sector. The company is known for its commitment to sustainability, innovation, and delivering high-quality residential, commercial, and township projects.

Business segments:

1. Residential Projects: 

Godrej Properties focuses on the development of residential properties, including apartments, villas, and plotted developments. These projects cater to a wide range of customers, from affordable housing to premium luxury residences.

2. Commercial Projects: 

In addition to residential developments, the company also undertakes commercial real estate projects, including office spaces, retail outlets, and IT parks. These projects are designed to meet the growing demand for quality commercial spaces in major urban centers.

3. Township Developments: 

Godrej Properties is involved in the creation of integrated townships that offer a holistic living experience. These townships often include residential, commercial, and recreational facilities, providing residents with a self-contained community.

Business Model:

Godrej Properties follows a business model focused on sustainability, innovation, and customer satisfaction. Key aspects of its business model include:

1. Quality Construction: 

The company places a strong emphasis on construction quality, ensuring that its projects are built to high standards and are environmentally sustainable.

2. Strategic Partnerships: 

Godrej Properties collaborates with leading architects, consultants, and construction companies to create world-class developments.

3. Customer-Centric Approach: 

Customer satisfaction is a top priority. The company engages with customers throughout the buying process and offers post-sales services to enhance the overall experience.

4. Sustainable Practices: 

Sustainability is at the core of the company’s operations. It integrates eco-friendly technologies and practices into its projects, aiming for energy efficiency and reduced environmental impact.

Current Saleable Area:

The company has a diversified portfolio of inventory situated at different locations around India. Pune accounts for 26% of total saleable area, followed by MMR (Mumbai Metropolitan Region) (22%), Bangalore (17%), Delhi NCR (15%) & the rest 21% of saleable area is located at other locations. 

Increase in Property Additions:

The company has seen a boost in property additions over the last decade. It saw an addition of an average addition of 10 million sq. ft area worth of projects from FY12 to FY17 but it added over 88 million sq. ft. across projects since FY18 with an average of 20 million sq. ft. across projects added every year. It has added a total of 42 projects in its portfolio since FY18. 

New Projects:

During FY22 Godrej Properties launched 16 new projects including Godrej Woods in Noida which clocked over ₹1,650 crore within a year of its launch. The new project launches were complemented by ₹4,826 crore of sustenance sales during the year. Among the newly added projects, there are 6 new projects with saleable potential of ~9.33 million sq. ft. 

Focus

The company focuses on creating a healthy project pipeline. While continuing its focus on  the four key markets of Mumbai, National Capital Region, Bengaluru and Pune, the company is now also looking to enter peripheral markets and tier 2 cities through plotted developments. 

Financials:

What we like:  

1. Access to Land Holdings of Godrej:

The company is a part of Godrej Group which is a multinational conglomerate with a diversified presence across many industries. It has access to large land banks of the group entities and has entered into agreements with various group companies for the development of land in the past. 

2. Increasing Market Share:

The company has been focusing on rising its market share in focus markets. It has significantly increased its market share in the real estate market of NCR from 2% in FY15 to 7.7% in FY21. It increased its market share in Bangalore from 0.8% to 5% in the same time frame and it increased its market share in Pune from 1% to 4.3%. Its share in MMR has also seen a rise from 0.9% to 1.4% but overall the market share in MMR remains comparatively low.

3. Lowest Funding Cost:

The company has the lowest bank funding cost of 5.95% p.a. in the sector due to its robust financial position and the goodwill of the company for being a part of Godrej Group.

4. Projects in the premium segment expected to improve margins:

EBITDA rose 98% YoY to INR 230 Cr in Q1FY24, while margin contracted 2290 bps YoY to 24.5%. The management made a one-time provision of INR 155 Cr for repair and maintenance at its Godrej summit, NCR project during the quarter. A quality issue had been identified in the project which was completed in CY17-18. The company has offered to buy back units from customers based on the initial selling price (INR 5,000 – INR 7,000/sf). Meanwhile, currently, the four projects in the BD pipeline belong to the premium and luxury segments on outright purchase. The management expects the projects to support improvement in margins in the coming quarters. 

5. Significant increase in revenue led by project deliveries:

Godrej Properties’ revenue more than doubled in Q1FY24, rising 282.6% YoY to INR 936 Cr, led by project deliveries totaling ~4.9 msf in four cities. The company also launched three projects/phases in two cities during the quarter. However, pre-sales declined 10.6% YoY in Q1FY24 to Rs. 2,254 Cr owing to the delay in regulatory approvals. Moreover, sales volumes declined 20.5% YoY to 2.25msf in Q1FY24. However, the management expects the pace of launches to pick up in Q2FY24.

Factors to consider:

1. The real estate industry is subject to market cycles and economic conditions. Economic downturns can impact the demand for properties.
2. Changes in real estate regulations and policies can affect the company’s operations and project timelines.
3. The real estate sector is highly competitive, with many players vying for market share. Intense competition can affect pricing and profit margins.

Conclusion:

Godrej Properties Limited is a reputable and established player in the Indian real estate sector. With a focus on quality, sustainability, and innovation, the company has earned the trust of homebuyers and investors alike. While it enjoys several advantages, it also faces challenges typical of the real estate industry, including market fluctuations and regulatory changes. Investors considering Godrej Properties should conduct thorough research and due diligence to make informed investment decisions.