We assign a ?buy? rating on Godrej Properties with a 12-month price target of R295 per share, which is based on 35% discount to our NAV estimate of R450 factoring in the cost of capital at 15%, higher leverage, longer gestation periods for planned residential projects & Vikhroli. We see an upside potential on new projects and higher development visibility of Group?s prime land assets. We believe Vikhroli development opportunity is under-valued and see cash-flow visibility to drive upside.
While earnings & operational momentum remained weak, we believe this has largely been factored in. We believe Godrej?s focus on Tier-1 residential markets, well-capitalised model for growth and strong corporate governance and customer equity will benefit going forward. With stock trading at 52% discount to NAV, we see an attractive risk-reward, though investor patience will be key in the near-term, as we see a pick up in pre-sales from H2FY15.
The company had an operationally good quarter, however, margins were stressed. Fourth quarter earnings rose 29% q-o-q, but fell 9% y-o-y. Ebitda, however, fell 11% sequentially and 23% y-o-y on weaker margins of 18% (against 35% in Q3FY14) on pressure due to a one-off loss on sale of old commercial project (in Kolkata), which the management was focusing to monetise (R167 crore in Q4). Operationally, it was a good quarter with pre-sales of R1,060 crore (against R420 crore in Q3FY14).
UBS