Godrej Properties places building blocks for FY25, but may stumble

The company’s pre-sales, or booking value, reached ₹9,500 crore for the quarter, leading to an annual total of ₹22,500 crore—an 84% increase that surpassed the guidance of ₹14,000 crore.

This surge was primarily fuelled by strong demand in new project launches, resulting in volumes growing 88% sequentially to 8.17 million square feet (msf). The robust quarterly pre-sales translated into the highest-ever quarterly collections at ₹4,690 crore.

These collections have effectively addressed earlier concerns regarding low operating cash flow. Additionally, this jump in operating cash flow in tandem with lower spending on land acquisitions led to a healthy free cash flow. This aided debt repayment of ₹700 crore, bringing net debt down to ₹6,200 crore.

The management’s bullish outlook on future growth has further buoyed investor confidence. Having exceeded guidance on all fronts, Godrej Properties anticipates a 20% increase in pre-sales and a 30% increase in collections for FY25, supported by upcoming launches valued at ₹30,000 crore.

The company also projects a 20% compound annual growth rate (CAGR) in pre-sales over the next two to three years, driven by a solid pipeline of project launches.

In FY24, the company continued its strong business development momentum, adding 10 new projects with a saleable area of 18.93 msf, valued at ₹21,200 crore, more than the target of ₹15,000 crore. For FY25, it has guided for project additions with a gross development value of ₹20,000 crore.

However, achieving the expected 20% surge in pre-sales growth might be challenging given that pre-sales in FY24 were substantially skewed towards Q4, forming 42% of annual pre-sales. This may be tough to replicate.

Further, there is a possibility of net debt creeping up again due to high spending on new land. Note that the net debt-to-equity ratio rose year-on-year to 0.62x vis-à-vis 0.39x. Furthermore, cash flows have been erratic in the past few quarters.

As Nuvama Institutional Equities pointed out, “With land spends continuing to be high and operating cash flow being patchy, concerns around free cash flow have arisen.”

Meanwhile, the management has clarified on the recent family settlement within the Godrej group, that Godrej Properties will continue its association for land development in Vikhroli, Mumbai land parcel, where it has 10% of revenue share.

While the stock has more than doubled in the past year, offering significant returns to investors, it now faces limited potential for further sharp increases. Investors should be cautious about the potential for high land acquisition costs and cash flow pressures, given the large project pipeline.