Weak Q1 cash flows, debt increase a worry for Godrej Properties

This, despite sales bookings and launch pipeline remaining robust

Aided by new launches, Godrej Properties reported its best-ever June quarter bookings or pre-sales performance. Volumes topped 3.6 million square feet, which was over thrice the year ago numbers. Sales value too saw a five-time jump to Rs 2,500 crore year-on-year (YoY).

On a sequential basis, however, the performance was one-third lower on the volume front and about one-fifth lower in revenue terms. Despite the sequential drop, the performance was better than what the Street had estimated.

The company launched three new projects in the first quarter of the 2022-23 financial year (Q1FY23), of which two were in the Mumbai Metropolitan Region or MMR (Wadala and Thane) and one in the National Capital Region. The total area of the launch was about 1.2 million square feet, about half of which was sold in the quarter. The company has a launch pipeline of 20.17 million square feet for FY23, out of which about 9.1 million are from new projects and the rest from new phases of existing projects.

After a strong June quarter and with plans to launch 19 million square feet in the remainder of FY23, the company, according to Elara Securities, is on track to meet the FY23 objective of attaining Rs 10,000 crore worth of bookings. Demand, too, appears to be strong with bookings coming amidst a 3-4 per cent hike in prices in the quarter preceded by 5-6 per cent rise in Q4FY22.

While bookings were strong, the reported Q1FY23 financials were impacted, given lack of new deliveries. Revenues recognised during the quarter at Rs 240 crore were down 82 per cent, sequentially, as no project received the occupancy certificate during the quarter.

Gross margins were marginally down over Q1FY22 and the company reported an operating loss. Revenue recognition is expected to improve as more projects come up for completion with the company looking to deliver about 10 million square feet of projects in FY 23.

Even as sales bookings were strong and collections improved, cash flows have remained weak in the June quarter. At just over Rs 1,800 crore, collections were down 38 per cent on a sequential basis. What weighed on cash flows was construction spends at Rs 877 crore, land and approval costs at Rs 538 crore, among others. As a result of negative operating cash flows, net debt has gone up to Rs 956 crore from Rs 463 crore in Q4FY22. Says Manish Agrawal of JM Financial, “While collections are expected to improve as construction /delivery accelerates, we expect elevated spends to continue on account of staggered land payments/new business development cost.”

Given the negative cash flows and debt increase, the stock was under pressure, shedding 2.6 per cent in trade on Wednesday. The company also announced a management change with the current chief executive officer leaving the company by the end of this year. “Market leadership among listed peers was among the key reasons for the company’s premium valuations — though several others have ramped up their sales performance resulting in the relative underperformance of Godrej Properties in recent years,” say Murtuza Arsiwalla and Prateek Barsagade of Kotak Institutional Equities.

After a 15 per cent jump in stock prices over the past month, the stock factors in demand gains. Investors should await attractive levels before taking an exposure to the stock.