Hold Godrej Properties, target Rs 520 : Edelweiss Financial Services
Hold Godrej Properties Ltd. at a price target of Rs 520.
New project acquisition in SohnaGPL has entered the Sohna market through acquisition of a group housing project. The project is located about 12kms from Gurgaon’s Golf Course Extension Road and connected to Gurgaon via Sohna Road. It has an estimated saleable area of 1.7msf with GPL entitled to 40 per cent of project profits. Project economics: We have assumed a starting selling price of Rs 5,200psf, project cost of Rs 2,800psf, project completion period of 6 years, 5 per cent YoY inflation and 14 per cent discount rate. Accordingly, we estimate GPL to garner sales of around Rs 4.3bn (its share) resulting in NAV of about Rs 856mn (Rs 4/share).
Good show in sluggish NCR marketThis is GPL’s first project in Sohna micro-market and eighth in the encompassing NCR market. In past 5 years, the company has been steadily ramping up its project portfolio in the NCR through JDA/JV/Development Management deals with local developers. This allows the local partner to handle various project approvals/clearances, while GPL focuses on leveraging its strong brand name and product quality to provide the necessary selling/marketing push. Consequently, most of GPL’s NCR projects have seen strong new sales – sold 80 per cent plus inventory in its ongoing NCR projects. Importantly, the company recorded such strong performance despite overall NCR residential demand being sluggish in past 3-4 years.
Outlook and Valuations: Fairly valued; 'HOLD'We expect GPL to continue expanding its project portfolio in its focus markets of Mumbai, NCR, Bangalore and Pune. Post RERA, opportunities for new project acquisition should increase for GPL; we have built-in around 15msf of new project additions for FY18 in our NAV estimate. At CMP, the stock trades at 14 per cent discount to our FY18E NAV of Rs 612. We believe the stock is fairly valued and offers limited upside from current levels.