Godrej Properties aims for sustainable growth, profitability with strong project pipeline

Pirojsha Godrej, Chairman of Godrej Properties outlined his strategy for robust growth of the company, backed by a substantial project pipeline during an analyst meet. Key insights reveal a focus on improved profitability, a targetted 20 per cent return on equity (RoE) and a commitment to existing markets, according to brokerage firm Motilal Oswal.

Godrej Properties envisions India's real estate as a strong growth story for the next decade, stressing on economic reforms, urbanisation, and job creation. With a strategic shift towards premium mid-income projects, the company aims for sustained 20 per cent growth and improved profitability. The move mitigates past margin challenges linked to lower-end mid-income projects.

Market focus

The company will concentrate on its existing markets—NCR, Mumbai, Pune, Bengaluru, and the upcoming addition, Hyderabad. With only 2-3 per cent market share, there's room for expansion in these markets. Godrej Properties plans to double down on existing markets before venturing into new ones, exploring plotted development opportunities in tier II cities for high-margin, quick-turnaround projects.

Project pipeline and financial outlook

Despite rising land prices, the company has secured projects worth Rs 35,000 crore in the last 18 months, ensuring a robust pipeline. While open to opportunistic investments, the focus is on launching current projects. The management expects positive free cash flow soon, operating comfortably at one time debt-to-equity (D/E). A confident projection of 10-15 per cent PAT margin and 20 per cent RoE further enhances the financial outlook, analysts at Motilal Oswal said in a report.

Acknowledging real estate risks, the company prioritises strategic capital commitment. With a shift from business development to project approvals, the unsold to launched inventory ratio has improved from 20 per cent to 11 per cent post-COVID. The company's low cost of debt, thanks to strong parentage, acts as a competitive advantage, the brokerage added.

Financial performance

Real estate developer Godrej Properties’ net profit zoomed 22 per cent annually to Rs 66.8 crore in the second quarter of the fiscal year (Q2FY24), from Rs 55 crore in the year-ago period.

The company's total income increased to Rs 605 crore, from Rs 369.2 crore in the corresponding period of the previous year. Its collections rose 23 per cent to Rs 2,378 crore, leading to net operating cash flow of Rs 811 crore in Q2 FY24. 

The company delivered around 1.55 million sq ft across two markets in the September quarter.

With a clear growth strategy, a robust project pipeline, and a positive outlook, Motilal Oswal has a Buy rating with a revised target price of Rs 2,300, indicating a 22 per cent upside.

As of 11:06 am, shares of Godrej Properties were trading 0.52 per cent higher at Rs 1,968.40 per share.