4 May 2017 India | Real Estate | Result Update

Godrej Properties | BUY

Margins impacted by cost escalations; April sales improve outlook
GPL reported stable sales with recognition of The Trees ph 2- inline with our expectations. Abhishek Anand CFA
abhishek.anand@jmfl.com | Tel: (91 22) 66303067
However one-off costs during the quarter impacted margins by 800bps sequentially. GPL
reported 0.6msf/RsRs3.4bn pre-sales, 50% lower sequentially as company executed sales
from ongoing projects only. With improvement in April pre-sales, operational performance is
likely to improve in FY18. The company continued to keep pace with execution
commitments, delivering 1.8msf during the quarter. Net debt increased Rs2.5bn (excl. Ind AS
impact), primarily on land/approval payments. Successful launch of The Trees and progress
on mixed development gives us higher comfort on execution of Vikhroli land bank. We
increase our TP to Rs580 on factoring the execution of Vikhroli land parcel over next 50 years
(vs. 40% execution previously). Key risk is continued slowdown in demand. Recommendation and Price Target
Profits at Rs626mn; margin decline on one off cost recognition: GPL reported PAT at Current Reco. BUY
Rs626mn vs Rs107mn in 4QFY16 as Trees ph 2 (Vikhroli) reached revenue Previous Reco. BUY
Current Price Target (12M) 580
recognition. Trees contributed 63% of topline during the quarter with company Upside/(Downside) 9.2%
recognising 46% of pre-sales (Total booking in Ph1/2 Rs13.6bn). However, GPL Previous Price Target 350
recognised higher cost on Godrej Platinum, Bangalore (Rs200m regulatory one-off) Change 65.7%
resulting in margins declining sequentially from 23% to 15%. Based on our interaction
Key Data GPL IN
with management Trees margins remained stable at c.35%. GPL reported
Current Market Price Rs531
0.6msf/RsRs3.4bn pre-sales, 50% lower sequentially as company executed sales from Market cap (bn) Rs114.9/US$1.8
ongoing projects only. Company has launched Trees ph 3, Godrej 24 (Pune) and Golflinks Free Float 26%
(Noida) in Apr17 which has resulted in a pre-sales of c.Rs10bn. Shares in issue (mn) 216.0
Diluted share (mn) 216.4
Net debt rises land approval related payments: Net debt went up Rs2.5bn (ex-Ind AS 3-mon avg daily val (mn) Rs266.7/US$0.3
adjustments), as GPL made payments for 1) land cost related to The Trees (Rs0.4bn), Pune 52-week range 586/285
Sensex/Nifty 30,126/9,360
(Rs0.6bn) and 2) FSI for Trees (Rs1.2bn). Net debt stands at Rs35bn with Net Debt to
Rs/US$ 64.2
equity at 1.8x. Commercial asset liquidation remains key for reducing debt.
Price Performance
Company takes first step towards introducing strategic partner for commercial assets:
% 1M 6M 12M
Board has approved demerging GPLs commercial and hospitality development business in Absolute 21.7 48.3 64.6
Vikhroli under separate subsidiaries. We believe this could act as a precursor to a tie-up Relative* 20.9 34.3 37.1
with strategic investor in Trees commercial project (Hotel/Godrej Two). This will reduce * To the BSE Sensex
the capital requirement in these commercial assets materially.

Strong brand and higher bargaining power to aid growth; BUY TP Rs580: GPL has been
able to successfully launch projects in tough market conditions. The companys recent
launches in Gurgaon (Oasis, Icon, 101, Aria) and Mumbai/Pune (The Trees, Godrej Sky,
Godrej Vihaa, Godrej Green, Godrej 24) have received booking for 75100% of units
offered. With improving execution visibility on Vikhroli land parcel, we now factor in
higher execution of land parcel (1000 vs. 400acres) thus increasing our TP to Rs580. We
believe GPL is well placed to reap benefits of a strong brand name, as evident with the
successful launches in the weak Mumbai market. The key investment risks are a slower-
than-expected ramp-up in operations and continuation of subdued residential demand.

Financial Summary (Rs mn)

Y/E March FY15A FY16A FY17A FY18E FY19E
Net Sales 17,429 21,226 15,829 16,640 21,270
Sales Growth (%) 62.1 21.8 -25.4 5.1 27.8
EBITDA 2,572 1,366 2,504 2,033 3,276
EBITDA Margin (%) 14.0 6.4 15.8 11.8 14.8 JM Financial Research is also available on:
Adjusted Net Profit 1,909 1,434 2,068 2,304 3,207 Bloomberg - JMFR <GO>,
Diluted EPS (Rs.) 9.6 6.6 9.6 10.7 14.8 Thomson Publisher & Reuters
Diluted EPS Growth (%) 19.7 -30.7 44.1 11.4 39.2
S&P Capital IQ and FactSet
ROIC (%) 4.2 1.9 3.6 2.9 5.2
ROE (%) 10.5 7.9 11.0 11.0 13.8
P/E (x) 55.5 80.1 55.6 49.9 35.8 Please see Appendix I at the end of this
P/B (x) 5.7 6.5 5.7 5.2 4.7 report for Important Disclosures and
EV/EBITDA (x) 56.3 103.3 59.8 68.1 42.5 Disclaimers and Research Analyst
Dividend Yield (%) 0.4 0.0 0.0 0.0 0.0
Source: Company data, JM Financial. Note: Valuations as of 04/May/2017
Certification.

JM Financial Institutional Securities Limited

Godrej Properties 4 May 2017

Exhibit 1. 4QFY17 result snapshot (Rs mn)

4QFY16 4QFY16 AS 3QFY17 AS 4QFY17 AS YoY % QoQ % Comment

Revenues 5,156 3,617 5,183 4,313 19% -17%

Sales 5,080 3,617 5,020 4,313 19% -14%

Other operational
76 0 162 0 -100%
income

Cost of sales 4,197 3,038 3,377 2,927 -4% -13% Profit sharing projects deconsolidation

Personnel cost 92 90 116 119 33% 3%

Rise on reclassification The company expensed cost

Other expenses 368 794 483 603 -24% 25%
instead of capitalizing it

EBITDA 499 -304 1,207 664 -318% -45%

1QFY16 included one-time payment from Byculla DM

EBITDA (% of Rev) 9.7 -8.4 23.3 15.4 2382 bps -788 bps
of Rs290mn

Dep. and amort. 44 42 36 40 -4% 10%

EBIT 455 -346 1,170 624 -280% -47%

Higher other income in Ind As, since revenues earned

Other income 174 281 334 336 20% 0%
from JV projects booked under other income

Higher interest expense as debt taken to fund JV

Interest expenses 83 74 355 248 234% -30%
projects expensed under finance cost

Pre-tax profit 547 -140 1,149 711 -608% -38%

Taxes 161 -7 405 189 -2789% -53%

Effective tax rate (%) 29.4 5.0 35.2 26.6 2159 bps -24%

Add: JV profits 26 28 104 266% JV (profit share projects) equity method accounting

Less: Minority interest 207 0 0 0 Profit share project minorities reclassified

Reported net profit 179 -107 773 626 nm -19%

Margin (% of Rev) 5.4 -3.0 14.9 14.5 1819 bps -40bps

Source: Company, JM Financial

Exhibit 2. Cash Flow (Rs mn)

1QFY17 2QFY17 3QFY17 4QFY17 FY17

Collections 5,790 8,550 4,370 6,970 25,680

Outflow

Construction Cost 3,760 3,615 3,160 3,490 14,025

Other Project related cost 1,570 1,520 1,280 1,360 5,730

Net operating cash flow 460 3,415 -70 2,120 5,925

Land & Approval related outflow 530 1,310 1,370 2,730 5,940

Advance to JV 130 120 100 340 690

Net cash after land/JV payments -200 1,985 -1,540 -950 -705

Interest payment 985 1,110 1,020 1,590 4,705

PE Exit 2,485 0 0 0 2,485

Net Cash flow -3,670 875 -2,560 -2,540 -7,895

Source: Company, JM Financial

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Godrej Properties 4 May 2017

Exhibit 3. Margins decline on back of one off costs in Godrej Platinum, Bangalore (Rs mn)
1QFY17 Ind 2QFY17 Ind 3QFY17 Ind 4QFY17 Ind
4QFY15 1QFY16 2QFY16 3QFY16 4QFY16
AS AS AS AS

Reported revenue 7,181 2,633 14,814 4,503 5,330 3,328 3,590 5540 4,648

Godrej Garden City, Ahmd 260 360 360 320 240 260 260 250 320

Godrej One, Mumbai

Godrej Platinum, Bangalore 110

Godrej Central, Mumbai 2,170 360 1,410 450 450 JV JV JV JV

The Trees, Mumbai 3,350 2,920

Godrej Waterside, Kolkata 0

Godrej Prakriti, Kolkata 250 130 130

Godrej Frontier, Gurgaon

Godrej Summit, Gurgaon 1,110 410 420 630 920 640 520 430

Godrej Oasis, Gurgaon 600 230 JV JV JV

Godrej Icon, Gurgaon 740 JV JV JV

Godrej Sky, Byculla 290

Godrej Genesis, Kolkata 150 100 140 110

Palm Grove, Chennai 0

Godrej Crest, Bangalore 0

Godrej Horizon, Pune 130

Godrej Prana, Pune 400 250

Godrej Platinum, Kolkata 0 250 110

Godrej Serenity 170

Godrej BKC 1,810 250 11,450 790 1,770 1,090 1,830 460 110

Others 1,260 860 910 1,060 980 1,340 960 800 1,150

Total 7,180 2,630 14,810 4,500 5,330 3,330 3,680 5,540 4,648

Ahmedabad + Commercial
Project (Ex- Godrej One) as a 28.8% 26.0% 79.7% 24.7% 37.7% 40.6% 58.2% 12.9% 9.3%
% of total

Adj. margins 13.2% 12.6%* 11.3% 19.0% 12.6%** 13.1% 7.1% 23.3% 15.4%
Source: Company, JM Financial

Exhibit 4. Debt rises on land payments linked with Vikhroli and Pune
Net debt trends (Rs bn) Borrowing cost (%)

Net Debt (Rs bn) Net Debt/Equity

11.2%
10.9%
2.0 40
1.8 10.6%
1.7 1.7 10.3%
1.8 1.6 35
1.5 10.1%
1.6
30
1.4 1.3
1.1 1.2 9.4%
1.2 25 9.3%
9.1%
1.0 20 8.8%

0.8 15
0.6
10
0.4
0.2 5
29 22 25 26 31 30 33 35
0.0 0
1QFY16 3QFY16 1QFY17 3QFY17
4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17

Source: Company, JM Financial

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Godrej Properties 4 May 2017

Exhibit 5. Balance sheet

4QFY16 4QFY16 AS 4QFY17 AS Comment

Shareholder's funds 21,682 17,738 20,037

Equity share capital 1,081 1,081 1,082

Reduction primarily on put option (Rs 2.3bn) and consolidation/other

Reserves & surplus 20,601 16,657 18,956
adjustments (Rs1.7bn)

Loan Funds 32,638 31,287 39,765

Minority interest 1,172 0 0 Minorities classified as JV investments

Deferred tax liab. (net) 345 -1,255 -1,382

Total liabilities 55,838 47,771 58,420

Net Block incl. CWIP 1,247 1,225 1,021

Acquisition of stake in an entity has been classified as an asset acquisition,

Goodwill on consolidation 209 0 0 accordingly the Goodwill as per previous GAAP has been reclassified to
land in project inventory

Investments 0 6,625 7,600 Reclassification of investments

Inventories 51,758 39,481 39,661 Realigned allocation of expenses to project inventory according to Ind AS

Sundry debtors 1,916 1,601 2,218

Cash & bank balance 6,404 706 1,104 Reclassification of cash equivalents

Loans & advances 10,754 8,981 8,164 Profit share equity method accounting impact

Other current assets 5,938 6,142 10,639

Trade payables 8,206 6,123 4,684 Profit share equity method accounting impact

Other current liabilities 14,015 10,728 7,234 Profit share equity method accounting impact

Provisions 167 137 69

Net current assets 54,382 39,922 49,799

Total assets 55,838 47,771 58,420

Source: Company, JM Financial

Exhibit 6. Operational performance

Sales volume (msf) Sales value (Rs mn)

1.3
1.3 19,570
1.2

1.0

12,510 12,140
0.7 0.7
0.7
0.6 0.6

6,930
6,160 6,000
4,280 3,870 3,400

4QFY15 2QFY16 4QFY16 2QFY17 4QFY17 4QFY15 2QFY16 4QFY16 2QFY17 4QFY17

Source: Company, JM Financial

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Godrej Properties 4 May 2017

Exhibit 7. Portfolio addition

Addition to portfolio - mn sq ft # of New project addn (RHS)

14 13.0 5

12
4
10

3
8

6 5.0 2
3.9 3.5
4
1.8 1
2 1.0
0.6
0.0 0.0
0 0
4QFY15 2QFY16 4QFY16 2QFY17 4QFY17
Source: Company, JM Financial

Exhibit 8. Execution significantly ramped up since FY14

6.0

4.6

3.5

1.9
1.8

0.9
0.5 0.4 0.5
0.0 0.0

FY11 FY12 FY13 FY14 FY15 FY16 1QFY17 2QFY17 3QFY17 4QFY17 FY17

Source: Company, JM Financial

Exhibit 9. Valuation (Rs bn)

Valuation EV Net Debt Equity Value Equity per share Valuation Method
Residential 56 0 56 258 NAV 12% Discount rate
Commercial 3 24 -20 -95 NAV 12% Discount rate
Development Manager 8 0 8 35 NAV 12% Discount rate
Vikhroli DM 69 0 69 321 50 year execution 1,000acres area
The Trees Commercial 13 0 13 62 10% cap rate less the cost of construction and land acquisition
Total 149 24 126 580
Source: Company, JM Financial

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Godrej Properties 4 May 2017

Financial Tables (Consolidated)

Income Statement (Rs mn) Balance Sheet (Rs mn)
Y/E March FY15A FY16A FY17A FY18E FY19E Y/E March FY15A FY16A FY17A FY18E FY19E
Net Sales 17,429 21,226 15,829 16,640 21,270 Shareholders Fund 18,469 17,648 20,037 21,909 24,662
Sales Growth 62.1% 21.8% -25.4% 5.1% 27.8% Share Capital 997 1,081 1,082 1,082 1,082
Other Operating Income 1,002 0 0 641 872 Reserves & Surplus 17,472 16,567 18,956 20,827 23,580
Total Revenue 18,431 21,226 15,829 17,281 22,141 Preference Share Capital 0 0 0 0 0
Cost of Goods Sold/Op. Exp 14,864 17,342 10,809 12,606 16,092 Minority Interest 2,279 0 0 0 0
Personnel Cost 355 450 475 499 524 Total Loans 34,865 31,229 39,765 29,765 29,765
Other Expenses 640 2,068 2,041 2,143 2,250 Def. Tax Liab. / Assets (-) -45 -1,223 -1,382 -1,382 -1,382
EBITDA 2,572 1,366 2,504 2,033 3,276 Total - Equity & Liab. 55,568 47,655 58,420 50,292 53,045
EBITDA Margin 14.0% 6.4% 15.8% 11.8% 14.8% Net Fixed Assets 1,898 1,072 1,021 1,080 1,331
EBITDA Growth -9.0% -46.9% 83.3% -18.8% 61.1% Gross Fixed Assets 731 1,491 1,020 1,220 1,620
Depn. & Amort. 100 142 145 141 150 Intangible Assets 742 0 0 0 0
EBIT 2,472 1,225 2,359 1,892 3,126 Less: Depn. & Amort. 300 425 0 141 290
Other Income 835 1,295 1,254 858 915 Capital WIP 725 5 0 0 0
Finance Cost 47 406 1,015 878 1,052 Investments 0 6,639 7,600 8,593 9,891
PBT before Excep. & Forex 3,260 2,113 2,598 1,873 2,989 Current Assets 71,688 56,850 61,786 53,359 61,790
Excep. & Forex Inc./Loss(-) 0 0 0 0 0 Inventories 47,271 39,231 39,661 28,672 35,317
PBT 3,260 2,113 2,598 1,873 2,989 Sundry Debtors 1,697 1,719 2,218 2,367 1,820
Taxes 904 679 777 562 897 Cash & Bank Balances 6,954 1,056 1,104 2,435 1,297
Extraordinary Inc./Loss(-) 0 0 0 0 0 Loans & Advances 10,016 6,229 8,164 8,049 9,706
Assoc. Profit/Min. Int.(-) 447 0 247 993 1,115 Other Current Assets 5,750 8,616 10,639 11,836 13,649
Reported Net Profit 1,909 1,434 2,068 2,304 3,207 Current Liab. & Prov. 18,018 16,907 11,987 12,740 19,967
Adjusted Net Profit 1,909 1,434 2,068 2,304 3,207 Current Liabilities 7,136 5,949 4,684 4,734 6,976
Net Margin 10.4% 6.8% 13.1% 13.3% 14.5% Provisions & Others 10,883 10,958 7,303 8,006 12,991
Diluted Share Cap. (mn) 199.4 216.3 216.4 216.4 216.4 Net Current Assets 53,670 39,943 49,799 40,618 41,823
Diluted EPS (Rs.) 9.6 6.6 9.6 10.7 14.8 Total Assets 55,568 47,655 58,420 50,292 53,045
Diluted EPS Growth 19.7% -30.7% 44.1% 11.4% 39.2% Source: Company, JM Financial
Total Dividend + Tax 481 0 0 0 0
Dividend Per Share (Rs) 2.0 0.0 0.0 0.0 0.0
Source: Company, JM Financial

Cash Flow Statement (Rs mn) Dupont Analysis

Y/E March FY15A FY16A FY17A FY18E FY19E Y/E March FY15A FY16A FY17A FY18E FY19E
Profit before Tax 3,260 2,113 2,845 2,866 4,104 Net Margin 10.4% 6.8% 13.1% 13.3% 14.5%
Depn. & Amort. 100 142 145 141 150 Asset Turnover (x) 0.4 0.4 0.3 0.3 0.4
Net Interest Exp. / Inc. (-) 47 406 1,015 878 1,052
Leverage Factor (x) 2.8 2.9 2.8 2.6 2.2
Inc (-) / Dec in WCap. -10,942 -238 -6,689 13,145 -388
RoE 10.5% 7.9% 11.0% 11.0% 13.8%
Others -705 -1,069 -1,254 -858 -915
Taxes Paid -1,168 -1,471 -777 -562 -897 Key Ratios
Y/E March FY15A FY16A FY17A FY18E FY19E
Operating Cash Flow -9,408 -117 -4,715 15,609 3,105
Capex -121 -244 471 -200 -400 BV/Share (Rs.) 92.6 81.6 92.6 101.3 114.0

Free Cash Flow -9,529 -361 -4,243 15,409 2,705 ROIC 4.2% 1.9% 3.6% 2.9% 5.2%

Inc (-) / Dec in Investments -960 683 683 0 -183 ROE 10.5% 7.9% 11.0% 11.0% 13.8%

Others 209 249 571 858 915 Net Debt/Equity (x) 1.5 1.5 1.7 1.1 1.0

Investing Cash Flow -872 688 1,725 658 332 P/E (x) 55.5 80.1 55.6 49.9 35.8

Inc / Dec (-) in Capital 1 1 0 0 0 P/B (x) 5.7 6.5 5.7 5.2 4.7

Dividend + Tax thereon -466 -480 0 -433 -454 EV/EBITDA (x) 56.3 103.3 59.8 68.1 42.5

Inc / Dec (-) in Loans 9,021 -2,172 8,535 -10,000 0 EV/Sales (x) 7.9 6.7 9.5 8.0 6.3

Others -31 -457 -4,294 -3,510 -3,006 Debtor days 34 30 51 50 30

Financing Cash Flow 8,524 -3,109 4,241 -13,943 -3,460 Inventory days 936 675 915 606 582

Inc / Dec (-) in Cash -1,756 -2,538 1,252 2,324 -23 Creditor days 164 109 128 113 135

Opening Cash Balance 8,710 6,954 1,056 1,104 2,435 Source: Company, JM Financial

Closing Cash Balance 6,954 4,416 2,308 3,428 2,412

Source: Company, JM Financial

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Godrej Properties 4 May 2017

History of Earnings Estimate and Target Price Recommendation History

FY18E FY19E Target
Date % Chg. % Chg. % Chg.
EPS (Rs) EPS (Rs) Price
16-Jul-15 17.1 315

4-Aug-15 17.1 0.0 315 0.0

30-Sep-15 16.7 -2.3 365 15.9

4-Nov-15 16.7 0.0 365 0.0

2-Feb-16 16.7 0.0 365 0.0

3-Mar-16 18.5 10.8 360 -1.4

5-May-16 17.8 -3.8 360 0.0

3-Aug-16 17.1 -3.9 360 0.0

3-Feb-17 10.2 -40.4 0.0 350 -2.8

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Godrej Properties 4 May 2017

APPENDIX I

JM Financial Inst itut ional Secur ities Lim ited

Corporate Identity Number: U65192MH1995PLC092522
Member of BSE Ltd. and National Stock Exchange of India Ltd. and Metropolitan Stock Exchange of India Ltd.
SEBI Registration Nos.: BSE - INZ010012532, NSE - INZ230012536 and MSEI - INZ260012539, Research Analyst INH000000610
Registered Office: 7th Floor, Cnergy, Appasaheb Marathe Marg, Prabhadevi, Mumbai 400 025, India.
Board: +9122 6630 3030 | Fax: +91 22 6630 3488 | Email: jmfinancial.research@jmfl.com | www.jmfl.com
Compliance Officer: Mr. Sunny Shah | Tel: +91 22 6630 3383 | Email: sunny.shah@jmfl.com

Definition of ratings
Rating Meaning
Buy Total expected returns of more than 15%. Total expected return includes dividend yields.
Hold Price expected to move in the range of 10% downside to 15% upside from the current market price.
Sell Price expected to move downwards by more than 10%

Research Analyst(s) Certification

The Research Analyst(s), with respect to each issuer and its securities covered by them in this research report, certify that:

All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and

No part of his or her or their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research
report.

Important Disclosures
This research report has been prepared by JM Financial Institutional Securities Limited (JM Financial Institutional Securities) to provide information about the
company(ies) and sector(s), if any, covered in the report and may be distributed by it and/or its associates solely for the purpose of information of the select
recipient of this report. This report and/or any part thereof, may not be duplicated in any form and/or reproduced or redistributed without the prior written
consent of JM Financial Institutional Securities. This report has been prepared independent of the companies covered herein.
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Broker having trading memberships of the BSE Ltd. (BSE), National Stock Exchange of India Ltd. (NSE) and Metropolitan Stock Exchange of India Ltd. (MSEI). No
material disciplinary action has been taken by SEBI against JM Financial Institutional Securities in the past two financial years which may impact the investment
decision making of the investor.
JM Financial Institutional Securities provides a wide range of investment banking services to a diversified client base of corporates in the domestic and
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The Research Analyst(s) principally responsible for the preparation of this research report or their relatives (as defined under SEBI (Research Analysts)
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While reasonable care has been taken in the preparation of this report, it does not purport to be a complete description of the securities, markets or
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to make modifications and alterations to this statement as they may deem fit from time to time.

JM Financial Institutional Securities Limited Page 8

Godrej Properties 4 May 2017

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