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Hold Godrej Properties Ltd, target Rs 520: Edelweiss Financial Services

Edelweiss Financial Services has a hold on Godrej Properties Ltd. at a price target of Rs 520|
Jul 05, 2017, 11.03 AM IST
Edelweiss Financial Services has Hold call on Godrej Properties Ltd. with a target price of Rs 520 .The current market price of Godrej Properties Ltd. is Rs 523.35.
GPL has entered into a JV agreement to develop a group housing project in Gurgaon entailing nearly 1.05msf saleable area. The project is located in New Gurgaon (5km from NH8) and is expected to be launched in FY19. This is a profit share project with GPL’s share at 37.5 per cent. We assume a starting selling price of Rs 6,500 psf, development cost of Rs 2,800 psf, project completion period of 5 years, 5 per cent YoY inflation and 14 per cent discount rate. Accordingly, we estimate GPL to garner sales of nearly Rs 2.9bn (its share), resulting in NAV of Rs 586 million (Rs 3/share).

The company has entered into a Development Management agreement for a new group housing project in Bangalore of nearly 0.6msf saleable area. Under the agreement, GPL will be entitled to nearly 11 per cent revenue share. Located on Magadi Road (West Bangalore), it is in the vicinity of Bangalore’s CBD and is likely to be launched in FY19. We assume starting selling price of Rs 8,500 psf, 80 per cent EBITDA margin, 4 years’ completion period, 5 per cent YoY inflation and 14 per cent discount rate. Accordingly, we estimate the company’s project profit of nearly Rs 346 million and NAV of Rs 204 million (Rs 1/share).

We expect GPL to continue to expand its project portfolio in its focus markets of Mumbai, Pune, Bangalore and NCR. Post RERA, the company should benefit from smaller developers looking to tie up with prominent ones to ensure better sales momentum and timely completion. In our view, GPL’s new project pipeline, prospects of portfolio expansion (we have factored nearly 15msf over FY18), strong brand name and tailwinds from RERA & affordable housing incentives are largely priced in. Hence, we maintain ‘HOLD/SP’. At CMP, the stock trades at 15 per cent discount to our FY18E NAV of Rs 612.
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