Godrej Properties - No surprises - IDBI Capital

Financial Performance: Revenue was 11% below our estimate at Rs3.1 bn (+17% QoQ). However, OPM at 31.6% was 350bps higher than our estimate of 28% (28.2% in Q3FY13), largely on account of better revenue mix - more contribution from high margin Godrej One and Frontier projects. EBITDA was in-line with our estimate at Rs984 mn (+31% QoQ). Net profit was 17% above our estimate at Rs532 mn (+50% QoQ) on account of lower tax. Effective tax rate of 27.5% in Q4 vs 31.3% in Q3FY13.

Operational Performance: GPL achieved new sales of Rs6.0 bn (-10% QoQ), 7% lower than our estimate of Rs6.5 bn. During the quarter, the company launched its BKC commercial project and was able to achieve pre-sales of Rs1.3 bn (~51K sf at a realisation of Rs26,000 psf). Despite the launch of lower sized units, sales momentum in the Ahmedabad project remained sluggish at Rs0.5 bn or 0.16 msf (0.5 msf in FY13). Although, management has been guiding for 1msf of annual sales in the project, we expect annual absorption to remain at current levels as affordability continues to remain an issue for the Ahmedabad residential market. The operating cash flow generation during the quarter seems to be muted as net debt was largely stagnant QoQ at Rs14.9 bn.

Maintain SELL with a TP of Rs520: We expect GPL to achieve new sales of Rs32.9 bn in FY15 (+19% YoY). However, operational cash flow is expected to remain weak given the significant fixed cost commitments (Rs1.8 bn of interest expense and Rs1.2 bn payment to Godrej & Boyce). We introduced FY15 revenue and net profit at Rs16.5 bn and Rs2.4 bn, respectively. At the CMP of Rs595, the stock is trading at 14% premium to our Mar-14 NAV of Rs520 and 3.0x our FY14 book value. We maintain our SELL rating on the stock.

Source : Equity Bulls

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