Company Overview

Godrej Properties (NSE: GODREJPROP) brings the Godrej Group philosophy of innovation, sustainability, and excellence to the real estate industry. Each Godrej Properties development combines a 123–year legacy of excellence and trust with a commitment to cutting-edge design and technology.

In recent years, Godrej Properties has received over 250 awards and recognitions, including ‘The Most Trusted Real Estate Brand’ in 2019 from the Brand Trust Report, 'Real Estate Company of the Year' at the 9th Construction Week Awards 2019, ‘Equality and Diversity Champion’ 2019 at the APREA Property Leaders Awards, ‘The Economic Times Best Real Estate Brand 2018’ and the ‘Builder of the Year’ at the CNBC-Awaaz Real Estate Awards 2018. 1

The company's projects over the years have delivered many firsts in the Indian real estate market. Planet Godrej, a skyscraper in Mumbai, was India's tallest occupied building when completed in 2008. It also illustrated its focus on customer safety and wellbeing by becoming the first project in the country to offer residents a fire escape chute. The company's commercial office project, Godrej BKC, is the only LEED (Leadership in Energy and Environmental Design) Platinum rated building in India's leading commercial district, Bandra Kurla Complex, demonstrating Godrej Properties' commitment to environmental sustainability. It is also the project where the company broke the record for India's highest ever commercial end-user sales transaction when a large multinational pharmaceutical company purchased space in this project for INR 1,479 crore in 2015. The company's flagship project, The Trees, is one of India's most sustainably planned mixed-use projects that the company hope will contribute to the evolution of urban design thinking in the country. The company sold over INR 1,200 crore worth of space within six months of launching this project in 2015, making it one of the country's most successful residential project launches.

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With an estimated 10 million Indians moving into the urban areas annually, the country's urban landscape is likely to change dramatically in the coming decades. The company firmly believe that India must seize on the opportunity to urbanize in a sustainable manner. The company's group has always been at the forefront of the environmental sustainability movement. The CII-Godrej Green Building Center in Hyderabad, when it was completed in 2004, was the first LEED Platinum building outside of the United States and was the single highest rated LEED building in the world.  In 2010, Godrej Properties committed that every single project the company develop will be a certified green building. Many of its projects have since received LEED Platinum certifications, which are globally recognized as the leading sustainability recognitions. The company's large township project, Godrej Garden City, in Ahmedabad was selected as one of only 2 projects in India and 16 worldwide by The Clinton Foundation to partner with them in the goal of achieving a climate positive development. In 2016, the company stood 2nd in Asia and 5th in the world in the GRESB (Global Real Estate Sustainability Benchmarking) study, which is an industry led sustainability and governance benchmarking platform.

In 2010, Godrej Properties became a publicly listed company through a successful IPO in which it raised USD 100 million. Godrej Properties also created a fund management subsidiary in 2016; Godrej Fund Management raised USD 275 million in the year's largest residential real estate focused fund raise in the country. Godrej Properties is one of India's only national developers with a strong presence across the country's leading real estate markets. In the financial year 2016, for the first time, Godrej Properties was India's largest publicly listed real estate developer by sales value having sold over INR 5,000 crore of real estate that year.  In the same year, the company also delivered 0.56 million square meters (6 million square feet) of real estate in seven cities across India.

The Godrej Group

The Godrej Group comprises of a varied business portfolio that includes real estate development, fast moving consumer goods, advanced engineering, home appliances, furniture, security, and agri-care. While a large number of its businesses are privately held, the combined market cap of its publicly listed entities is in excess of USD 15 billion. Ranked as the 2nd most trusted Indian brand, an annual revenue of USD 5 billion, and an estimated 1.1 billion customers across the world that use one or another Godrej product every day, the Godrej Group is amongst India's most diversified and trusted conglomerates.

The Godrej Group was established in 1897 out of a desire to demonstrate economic self-sufficiency and excellence within India in the pre-independence decades. From safes that withstood fires better than international competitors', to one of the world's first soaps from vegetable oil, and the ballot boxes for independent India's first general election, the group has a proud tradition of making meaningful products and building businesses that serve the country's interests.  Godrej Properties has always focused on people and the planet along with the profits. Approximately 23% of the promoter stake in the Godrej Group, is owned by philanthropic trusts that work on environmental, educational, and health care issues in India.  Godrej Properties is also bringing together its passion and purpose to make a difference through its Good & Green strategy of shared values to create a more employable Indian workforce, build a greener India and innovate for ‘Good' and ‘Green' products.

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Projects City

  • Mumbai
  • NCR
  • Pune
  • Bangalore
  • Kolkata
  • Ahmedabad
  • Nagpur
  • Mangalore
  • Chennai
  • Chandigarh

Industry Overview

The Indian real estate sector has been trying to get back on its feet and come to terms with multiple reforms and changes brought in by demonetization, RERA, GST, IBC, NBFC crisis and the subvention scheme ban. While it was a tough task for the sector to align itself with these new regulations, the measures have been instrumental to bring transparency, accountability and fiscal discipline over the last few years. Prior to COVID19, the real estate sector was expected to grow to USD 650 billion and contribute around 13% of India’s GDP by 2025 (from around 6-7% in 2017), according to ANAROCK Research.2

Over-reliance on NBFC funding led to severe funding issues after the IL&FS default, wherein RBI had asked NFBCs to bring down their exposure to real estate sector. The share of NBFC loans to real estate which plunged to 46% of total credit to real estate sector in 2018-19, is expected to further come down. Current coronavirus outbreak is expected to derail the sector’s growth momentum in the short term due to its impact on the overall slowing economy. According to industry estimates, 90% of the workforce employed in real estate and construction sector is engaged in the core construction activities, while the rest 10% is involved in other ancillary activities. Since majority of the workers are immigrants, labor shortage could possibly pose a major challenge for the sector post COVID19 lockdown.

Residential Real Estate Market

The Indian residential sector has been grappling with subdued demand for the past few years and the recent developments (ongoing impact of NBFC crisis and COVID19) have made things even more difficult for the sector. According to the property research firm Knight Frank, the total sales volume in the top eight cities increased by a modest 1% in CY2019 to 245,861 units as the sector continued to be impacted by the prolonged crisis in the NBFC sector. While certain measures such as the consecutive rate cuts by the RBI, the reduction of GST rates to 1% for affordable housing and 5% for others and the setting up of an Alternative Investment Fund (AIF) have helped home-buyer sentiments, they’ve had little impact on the sales for the sector. New launches increased by 23% to 223,325 units across eight cities including Mumbai, Bengaluru and the National Capital Region (NCR). This came after a sharp jump in launches in CY2018 (+76% YoY) when the sector started coming to terms with the RERA regime. Ahmedabad witnessed the sharpest growth in new launches at 176%, followed by Hyderabad which recorded launch growth at 150%.

The growth in residential prices in most of the top eight cities of India has been below retail inflation growth since CY2016, with the gap only widening since H1 2016. Hyderabad has been the only market to beat the trend and register residential price growth over the retail inflation level. According to an affordability benchmark study by Knight Frank India, ideal affordability is identified at 4.5 times the average annual household income in a city and except for Mumbai, NCR and Hyderabad, all other markets are below the ideal affordability benchmark. While Mumbai continues to be the most expensive housing market with affordability index of 7.1, it has seen affordability of homes significantly improve from 11 times the annual household income in 2010. NCR and Hyderabad are marginally above the benchmark affordability with scores of 5 each, while Bengaluru has an affordability index of 3.9. The affordability levels have risen the most for Pune at just 2.5 times of their average household incomes.

COVID19 Impact on Residential Real Estate

COVID-19 has severely hit residential real estate business and the sector has come to a standstill in the short term. While the sector was coming out of the woods after the liquidity crisis initiated by the IL&FS fiasco and subsequent fallouts of various financial institutions, the pandemic outbreak could further impact residential sector.

Drop in new launches and slump in sales volumes

Amidst the current COVID-19 outbreak, the sector is likely to witness major disruptions due to construction delays and financing issues. Also, many prospective customers could consider postponing their decisions either to stay away from the project sites or in the expectations of a price correction. According to ANAROCK Research, new launches could decline by 25%-30% and sales volume could decline by 25%- 35% in CY2020.

Accelerated Consolidation

Post Demonetization, RERA and Liquidity crisis, the survival of the fittest and financially strongest has become the new norm in the Indian real estate sector and well capitalized & established players have gained substantial market share over the years. This consolidation phase is likely to continue amidst the current COVID-19 outbreak and probably accelerate, as the company emerge from this pandemic and many weak players may cease to exist.

Office Market

The Indian office market has been fairly resilient from the broad macro concerns due to slowdown in the economy and gained strong traction in CY2019 with record supply hitting the market during the year, according to a report by Knight Frank. The office space supply rose sharply by 56% YoY to 61.3 million sq. ft. in CY2019. The office sector also witnessed highest ever transaction activity of 60.6 million sq. ft., up 27% YoY. The Hyderabad office market particularly witnessed a very strong year, recording transactions to the tune of 12.8 million sq. ft. (up 82% YoY), which is nearly twice its previous high. The IT/ ITeS sector contributed around 41% of transacted volume in H2 2019, while share of BFSI dipped to 16% resulting from NBFC crisis and credibility issues with some banks. Coworking space continued its growth momentum, accounting for 12% of the total transactions, up from 8% in the previous year.

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Financial Overview

For the full financial year under review, GPL’s total income decreased by 13% and stood at Rs 2,829 crore. However, EBITDA increased by 23% to 733 crore and net profit increased by 6% to Rs 267 crore.

The company added 10 new projects with 19 million sq. ft. saleable area potential in aggregate located across Bangalore, National Capital Region and Mumbai. One of the key developments during the year was acquisition of 26 acres in Central Delhi from the Railway Land Development Authority with a saleable potential of 3.3 million sq ft. The Company also added a plotted development in Faridabad, making it the first company project in the city. The projects added are in line with the Company’s long-term strategy of focusing on value accretive and risk efficient models. These new projects have further strengthened the Company’s project pipeline and will drive performance in coming years.

The company has achieved the highest ever sales in its history, making the Company India’s largest publicly listed developer by value of real estate sales. The Company achieved sales volume of 8.8 million square feet and booking value of 5,915 crore in FY20. This is a growth of 11% from FY19 in booking value. That makes it fourth time in last five years that the Company has recorded a booking value in excess of 5,000 crore. The Company achieved sale volumes of more than 1 million sq. ft. and sale value of more than 1000 crore in all its four focus markets of Bengaluru, MMR, NCR and Pune. The Company launched 17 new projects/phases in FY20. Most notable of these were Godrej South Estate, Delhi with booking value of 510 crore and Godrej Nurture, Bengaluru with booking value of 316 crore. These successful launches were complimented by 3,120 crore of sustenance sales in FY20 which is the highest ever reported by the company and as a result significantly strengthened its relative market position in each of its four key growth markets.

On the operational front, the Company successfully delivered 5.2 million sq. ft. across its projects. The Company has now delivered almost 22 million sq. ft. of real estate in the last five years. Godrej 24 in Pune received its Occupation Certificate in Q4 within 24 months of starting construction. This is the fastest ever project completion for the company. The Company’s ramp up in project delivery demonstrates that it can operate at a large scale and keep pace with its accelerating sales. Customer Net Promoter Score achieved by the company also improved significantly over the last one year from 26% to 59%. This reflects the improved customer experience and product quality offered to its customers. The Company received more than 57 awards in FY20, reflecting its commitment towards being amongst the top 3 real estate companies in India. Some of the prominent accolades received by the Company were – “Builder of the Year” (CNBC Awaaz), “Real Estate Company of the year” (Construction Week Awards 2019 ), “Most Trusted Brands of India” (Trust Research Advisory’s Brand Trust Report 2019), “Equality and Diversity Champion” (APREA Property Leaders’ Summit). The Company’s credit rating by ICRA stands at AA, with continued access to low cost capital, showcasing confidence in the Company’s operations.

Due to default/delay on the part of the JVPs in fulfilling their contractual obligations, including obtaining approvals and providing funding, the Company has initiated legal action in three projects in MMR – in Byculla, Thane and Bhandup. The Company is confident of its merits in these cases.

Future Prospects

The Company witnessed an uptick in residential real estate demand compared to the year before. However, the outbreak of Covid-19 pandemic is expected to adversely impact the sector performance in the first half of FY21. The most significant impact of Covid-19 is expected to be the reverse migration of workers which will impact construction activities across the country. This is expected to cause project execution delays and working capital issues for financially weak developers. While the start of FY21 may be muted due to the lockdown and its subsequent toll on economic activity, the company believe customers would eventually return to the market in the second half of the financial year to partially mitigate the demand impact in earlier quarters. While the company do expect the demand to catch up within the year, the company believe the customers would expect relaxed payment plans. The company also expect some increase in customer outstanding owing to the pessimistic liquidity environment.

While the industry at large may be adversely impacted by this pandemic and the recovery phase slowdown, the company’s healthy balance sheet and project pipeline will help maintain operational momentum in the months ahead. The Company believes technology will play an important role to minimize the impact of Covid-19 going forward. The company has been actively focusing on improving on-site facilities to create a safe working environment for workforce and reduce the impact of reverse migration. The company has been working on making the supply chain more efficient as lockdown restrictions are eased. These measures will not only help the Company in tiding over the impact of Covid-19 but also make it more efficient in the long term. The company believe that government reforms will lead to improved governance in the sector, increase transparency and bring about consolidation amongst real estate players. The Company remains positive about the long-term direction of the sector on back of higher consumer confidence and increasing affordability due to declining interest rates, stagnant real estate prices and rising disposable income. The company believe that Godrej Properties is in a strong position to benefit from such expected shifts in the sector. With its strong brand, pan India presence, demonstrated track record and excellent sales and marketing capabilities the Company is well poised for a high growth trajectory over the next few years.

GPL will focus on opportunistic growth avenues in current environment to create a healthy project pipeline across its four focus markets. Fast turnaround deals shall be a specific focus area for new deals in FY21. When evaluating new projects, the Company will continue to seek superior long-term growth in shareholder value by maximizing returns through optimal financing and fiscal discipline. The Company shall also enhance agility across its processes to further reduce project launch turnaround times. The company shall continue its pursuit of two key strategic priorities - adoption of modern construction technology methods and achieving a high Net Promoter Score (NPS) in FY21 as well. These shall provide the company with the competitive edge in operational excellence and customer experience respectively

Q3 FY21 Highlights

Sales booking for Q3 FY21 and 9M FY21 stood at INR 1,488 crore (up 25% YoY) and INR 4,093 crore (up 16% YoY), respectively 3

Launched 3 new projects/phases in Q3 FY21, and 4 new projects/phases in 9M FY21

Added two new residential projects in Bangalore with a combined saleable area of 4.1 million sq. ft. in Q3 FY21

Workforce strength stood at 124% of its pre-COVID strength at the end of the quarter

Delivered ~1.3 million sq. ft. across 2 cities in Q3 FY21

Successfully registered 3000+ workers under Building and Other Construction Welfare Board and insurance schemes under central government

References

  1. ^ https://www.godrejproperties.com/ourstory/about-us
  2. ^ https://d1jys7grhimvze.cloudfront.net/backoffice/data_content/annual_report/Annual_Report3.pdf
  3. ^ https://d1jys7grhimvze.cloudfront.net/backoffice/data_content/investor_financials/Investor_Presentation_-_16th_February,_2021.pdf
Created by Asif Farooqui on 2021/05/10 11:37
     

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