04 Feb , 2022 By : Kanchan Joshi
The stock of Mumbai-focused real estate developer Godrej Properties Ltd took a knock on Friday, falling around 8.5% on the NSE in early trade. A couple of developments have not gone down well with the investors.
First of all, its December quarter earnings were disappointing due to limited launches. Booking volume at 2.22 million square feet (msf) was relatively muted, declining 39% sequentially and 7% year-on-year (y-o-y). Pre-sales of Rs1,541 crore was down 40% compared to Q2FY22 and rose marginally y-o-y.
In a post-earnings conference call, the company's management said that delayed approvals weighed on its launch plans. However, it plans to launch around 9 msf of projects in 4QFY22 with some projects in the advanced stages. The management said that there was no meaningful impact of the third wave on the March quarter performance and it is confident of seeing strong bookings. Further, it has also maintained its guidance to achieve more than Rs10,000 crore in pre-sales bookings in FY23.
Another factor that investors in the stock do not seem to be comfortable with is the company's decision to invest in DB Realty for a 10% stake. Godrej also plans to form a special purpose vehicle (SPV) with DB Realty which will undertake slum rehabilitation plan and Maharashtra Housing and Area Redevelopment Authority redevelopment projects. For all this, Godrej will be investing Rs400 crore in DB Realty. The Godrej management is of the view that projects under this SPV can have sales potential of Rs15,000 crore with the first project being launched in FY24.
However, analysts flag some serious near-term risks relating to capital allocation. They caution that this partnership would be an overhang for the Godrej stocks until some visibility on project development emerges.
"We are not enthused by the proposed entity level investment in DB by Godrej Properties and believe that this exposes Godrej's shareholders to entity level risks in DB and greenfield slum rehab projects in Mumbai which are fraught with risks," analysts at ICICI Securities Ltd said in a report.
According to analysts at Jefferies India Pvt Ltd, while slum rehabilitation projects can be lucrative, there is a limited track record of large-scale success. "Moreover, DB's own track record is weak, including debt defaults, which raises risks for GPL's investment" says the Jefferies report. So, this could be near-term de-rating event for Godrej Properties, they caution.
Little wonder then that the pain of Godrej investors is a gain for DB Realty. The stock of DB Realty rose 4% on the NSE on Friday to hit a new 52-week high of Rs100.15.
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