Godrej Properties - 2QFY13 Results Update - Motilal Oswal

Godrej Properties (GPL IN) reported in-line 2QFY13 results, with expansion in EBITDA margin.

- Revenues grew 67% YoY (+3% QoQ) to INR2.3b - led by (1) Godrej One (51%), (2) Garden City, Ahmadabad (17%), (3) Prakriti, Kolkata (12%) and (4) development management (DM) fees (11%). EBITDA grew by 124% YoY (+78% QoQ), led by strong margin expansion to 30.9% (v/s 17.8% in 1QFY13 and 23% in 3QFY12).

- QoQ margin expansion is attributable to (1) higher contribution from Godrej One (INR1.2b, ~40% margin) and DM fees, and (2) insignificant contribution from loss-making commercial projects at Kolkata. PAT (post minority) grew by 67.5% YoY (+90% QoQ) led by better operations and lower effective tax rate.

- 2QFY13 sales momentum has primarily been bolstered by recent launches. In its recently-launched project at NCR, Godrej Summit, the company sold ~1msf (695units, INR5,800/sf) on the day of launch. Overall, the company sold 1.1msf (INR7.2b) v/s 0.75msf (INR5b) in 1QFY13.

- 1HFY13 sales grew ~2.7x YoY to INR12.2b (v/s INR4.5b in 1HFY12 and INR15.6b in FY12). We estimate sales of ~INR24.5b in FY13, which seems to have a low downside risk given ramp-up in launches. Over 1HFY13, company launched 6 of the 17 planned launches and guided for on-time launch of remaining projects over 2HFY13.

- After posting negative operating cash flow till FY12, due to several acquisitions and slow moving commercial projects, GPL's operating cash flow turned positive in 2QFY13. We estimate positive operating cash flow of ~INR1.9b, utilized towards interest payment of INR620m and reduction in net debt of ~INR1.3b.

- Net debt stood at ~INR16.1b (v/s INR17.4b in 2QFY13) - implying net DER(x) of 1.1x. Cost of debt stood at 11.8%, against 11.1% in 2QFY12.

Valuation and view: Going forward, we expect the key triggers would be a) success in stated launch plan, b) monetization visibility in BKC commercial and c) progress in de-leveraging. GPL trades at ~8% discount to our NAV, 24.1x FY14E EPS and 2.7x FY14E BV. Maintain Neutral with a target price of INR620.

Source : Equity Bulls

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