Recent spurt in business development has taken Godrej Properties’s (GPL) project additions since FY21 to Rs 30,000 crore/30m sf+, 90%+ of which are via the buy-out route. Rising residential prices and low competition for land acquisitions make GPL’s move timely; and projects are likely to boost revenue & margin visibility. The new projects are also complimentary to existing land bank and as such raise medium-term pre-sales growth confidence. The stock looks attractive at near 5-year low PB.
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Reasonable costs likely as competition low. 92% (by-value) of the Rs 31,100 crore worth of projects acquired since FY21 is via the buy-out route. This marks a strategic shift for GPL which had built-up its project pipeline largely via partnership model over the last decade. We estimate that cost of land acquisitions is still reasonable (20-25% of saleable value for all-in land cost for Noida and Kandivali), which makes potential project margins 30%+. Low competition for land buy-outs has kept costs controlled.
Complementary locations and segments. The project acquisitions since FY21 have focussed on MMR (51% by value) and Bangalore (20%). The two geographies have contributed ~30% to pre-sales in FY22, and management believes the new projects will help to boost sales contribution from these cities. With a rising share of take-rate in new acquisitions, we estimate that GPL’s share of pre-sales, on a blended basis, will rise from ~50% in FY21-22 to ~70% in FY24-25. GPL trades near -1sd 5-year price to book ratio (PB) and below average 10-yr PB -we see a good entry point.
