Godrej Properties - Unorthodox business model; initiating with Buy - Anand Rathi

Asset-light model offers stable growth. Godrej Properties (GP), a pan-India developer (78.4m sq ft development at 37 projects in 12 cities), interests us for its pedigree and an asset-light model. Its joint-development model affords an advantage, wherein with optimum capital commitment the company generates high returns and is relatively insulated from fluctuating land prices. Since most initial approvals are already in place, property launches are timely and revenue generation faster. Moreover, the parent group's vast land bank is attractive and offers a high option value.

Strong near-term visibility from 4 projects. Four key projects, namely, Godrej Garden City (Ahmedabad), Panvel township (Navi Mumbai), Oasis (Hyderabad) and JET-BKC (Mumbai) hold the key to GP's valuation and account for 30% of NAV. The Jet-BKC deal, despite being a commercial project, is expected to be EPS-accretive (other three are residential projects). Together, these projects will help GP grow revenues 58.6% over FY12-14.

Higher focus on increasing cash flows. The company is looking to monetise its commercial projects in Kolkata and Mumbai (Jet-BKC). The Kolkata project alone is likely to generate cash inflow of `6bn in FY14-15. Besides, GP has aggressive launch plans for FY14, and we expect absorption of 4.5m sq ft. This would generate operating cash flow of `3.2bn in FY14e (negative couple of years back).

Our take. We initiate coverage on GP with Buy and target of `710 (an upside of 19%). and like the stock on account of its: (1) Pedigree and brand equity; (2) asset-light model, leading to attractive capital ratios; (3) near-time earnings visibility ;(4) option value from monetisation; and (5) predictable cash flows We expect all these factors to lead to 58% revenue CAGR over FY12-14. Risks. Delay in obtaining approvals, rising construction costs, and slowdown in the economy.

Source : Equity Bulls

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