Godrej Properties - Better sales mix leads to earnings beat - IDBI Capital

Financial Performance: PAT 72% above estimate at Rs326 mn

Revenue was 7% ahead of our estimate at Rs2.3 bn (+3% QoQ / +67% YoY). OPM at 30.9% was significantly higher than our estimate of 17.0% (17.8% in Q1FY13) on account of (1) better revenue mix and (2) receipt of one-time development fee of Rs250 mn. Revenue contribution from high margin project, Godrej One (Mumbai), increased from 43% in Q1 to 51% in Q2FY13. Also, the contribution of Kolkata commercial projects, which GPL has been selling below cost due to low demand, declined from 13% in Q1 to 3% in Q2FY13. EBITDA was 95% higher than our estimate at Rs719 mn (+78% QoQ / +124% YoY), while PAT was 72% above our expectation at Rs326 mn (+90% QoQ / +67% YoY).

Operational Performance: New bookings up 83% QoQ to Rs9.6 bn

GPL reported new bookings of Rs9.6 bn (+89% QoQ) in Q2FY13, largely driven by strong pre-sales (Rs6.0 bn) in Godrej Summit, Gurgaon. Sales velocity in Godrej Garden City continues to remain muted, substantiating our negative view on the Ahmadabad resident market. Net debt declined by Rs1.9 bn QoQ to Rs15.5 bn on account of collections from Godrej One and Godrej Summit projects.

Change in strategy for non-metro locations a positive

We have been highlighting the problems associated with using the joint-development model (especially revenue sharing) in Tier-2 cities since our initiation on GPL in April 2011. Due to thin margins, a developer will have to sell a significant portion of the project at the time of the launch to fund the construction cost (i.e. become working capital negative). However, this results in developer exposing himself to the risk of unexpected increase in construction cost, as we saw in the case of GCC, Ahmedabad. The recent change in company strategy of following PMC and profit sharing (instead of revenue sharing) models for non-metro locations therefore comes as a positive.

Revise TP to Rs505; Downgrade to SELL

We have increased our TP to Rs505 due to (1) better than expected operational performance and (2) rollover of NAV to Mar-14. At the CMP of Rs605, the stock is trading at 20% premium to our revised NAV of Rs505 and 2.8x our FY14 book value. Due to the recent run-up in stock price (up 17% in the past 3 months), we have downgraded the stock one notch to SELL.

Source : Equity Bulls

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