Godrej Properties Ltd (GPL) continues to build its project portfolio through partnerships and acquisitions. The balance sheet should improve thanks to the recently concluded R700-crore rights issue. However, the sluggish macro climate, gradual ramp-up and full valuations keep us ?equalweight? on the stock.
We incorporate new project launches and the acquisition of new projects (joint development/ DM model). We have updated project prices and the execution schedule in line with current market conditions. We have also cut our F14 and F15 EPS estimates by 45% each, driven by slower-than-expected sales at the Ahmedabad and Commercial projects, delay in planned new launches and new revenue recognition guidelines.
We derive our new price target of R407/share by deepening our target discount to NAV to 35%. The change from a 15% target discount is to account for group de-rating (52% discount to NAV) and the current adverse macro climate. This is offset by positives, including quality brand name, prospects for operational scale-up, and strengthening of the balance sheet.
Scale-up in operation is required to unlock value. GPL stock is down 33% YTD (vs 41% drop in Realty Index) and its discount to forward NAV is now 42%. To us, valuations appear full on a P/E basis ? 17x for F14e and 13x for F15e (~25% understated due to high interest cost capitalisation).
Morgan Stanley
