Buy Godrej Properties, target Rs 1,000: Deutsche Bank Research
Buy Godrej Properties at a price target of Rs 1,000.
The current market price of Godrej Properties is Rs 634.85.
Time period given by Deutsche Bank Research is one year when Godrej Properties price can reach the defined target.
Investment rationale by Deutsche Bank Research:
Growth decelerates on a high base: After a superlative last fiscal year – which saw Godrej Properties ( GPL) booking value growth of 152 per cent YoY - the current fiscal is tracking comparatively soft. GPL’s quarterly sales declined for the second consecutive quarter. Quarterly area sold declined 31 per cent YoY to 1.07 msft. The booking value of Rs 8.07 bn is 40 per cent lower YoY. On a two year basis, though, the 1H area sold and booking value have increased at a CAGR of 30 per cent and 28 per cent respectively. Management attributed the decline to regulatory delays and maintains the start of the year planned launch pipeline. During the first half, GPL has launched three projects and the plan is to launch seven new projects into 2H FY.
Accounting transition led volatile revenue and profit headlines: GPL has transitioned to the new Ind AS accounting standard. 2Q FY19 revenue, and PAT were Rs 3.9 bn and Rs 206 mn respectively. Under the new - project completion revenue recognition accounting - reported financials are expected to remain volatile, thereby increasing the relative importance of sales momentum and cash flow statement for investors We have reduced our current year earnings estimates driven by this transition to a new accounting standard and weak quarterly earnings.
Cash flows momentum improves further: The strong sales momentum last fiscal is getting reflected in cash flows momentum. GPL’s 2Q FY19 net operating cash flow increased 67 per cent YoY to Rs 3.8 bn. The net cash flow is led by a 50 per cent YoY increase in cash inflow and a 42 per cent YoY increase in operating cash outflows. (See details inside). Company's net debt to equity ratio remains comfortable at 0.6 times and is well positioned to capitalize on the opportunities triggered by the recent credit market developments. The residential sales momentum is showing signs of a gradual bottoming out.