Godrej Properties shares down 20% in 6 months; worth a buy?

Godrej Properties Ltd on Monday fell over 4 per cent to take its six-month slide to 20 per cent. Axis Capital stays bullish on the stock as it believes the real estate player is on track to surpass its FY25 pre-sales guidance of Rs 27,000 crore and that its recent capital raise may further boost growth. A rising cash flows a lead indicator of margin improvement, it said.

Amid a broader selloff in the market, shares of Godrej Properties fell 4.49 per cent to hit a low of Rs 2,607.40 on BSE.

Axis Capital said the recent capital raise will enable the company to maintain a high growth trajectory for at least the next two years. Godrej Properties aims to replicate NCR’s success across markets and clock pre-sales of over Rs 10,000 crore in all the four zones over the next two years.

"A lot of impetus is also on profitability and hence – despite the availability of capital – the management wants to be disciplined on project addition and arrest land cost at 12-20 per cent of GDV. We raise our FY25/ FY26 pre-sales estimate by 7 per cent/12 per cent as we incorporate recent project additions. Reiterate BUY rating with an unchanged target price of Rs 3,800," Axis Capital said on January 3.

This target suggests a 46 per cent potential upside on the counter over the prevailing stock price. Godrej Properties' operating cash flow (OCF) margin (OCF/collections) has sustained at 34 per cent in the last two years and Axis Capital assumes it to remain flat in FY25.

"However, the margin is expected to step up to 40 per cent by FY27 as contribution of cash flows from recent project addition rises. We believe that the improvement in cash flow is a leading indicator of healthy profitability, which has been a key investor concern for GPL. OCF margin of 40 per cent will ensure reported Ebitda margin of 25-30 per cent once it comes up for recognition beyond FY26," Axis Capital.

While Q2FY25 was muted, Godrej Properties delivered 90 per cent YoY growth in pre-sales to Rs 138 bn in H1FY25 and achieved 51 per cent of the FY25 pre-sales guidance of Rs 27,000 crore. With ask rate of Rs 13,200 crore for H2FY25, the company remains confident of surpassing its FY25 guidance.

"In H2FY24, it clocked bookings of Rs 15,200 crore and given the healthy launch pipeline, it can potentially deliver a growth on last year’s number too," Axis Capital said.

Antique Stock Broking expects Godrej Properties to continue with its strong traction. It noted that the company had a few new projects launches during the quarter with gross development value of over Rs 10,000 in Gurugram, NOIDA, Pune, and Kolkata.

"These projects are expected to receive healthy response. We expect sales booking to be Rs 6,500 crore during the quarter," it said.