New launches help Godrej Properties end Q4 on a high note despite lockdown

The Godrej Properties stock is up 13 per cent in the last three trading sessions as compared to the BSE Realty’s 3.5 per cent gain
Even as the real estate sector reels from slowing sales and construction delays, Godrej Properties has posted another quarter of strong volumes. The company reported its best ever quarterly sales figures both by volume and by value. Bookings in the March quarter, at Rs 2,380 crore, were twice that of the October-December period and 10 per cent higher than the year-ago quarter.

Murtuza Arsiwalla and Samrat Verma of Kotak Institutional Equities say strong business development continues to remain the forte of Godrej Properties as the company added five new projects in the March quarter, taking total project addition in FY2020 to ten.

Among the 3,000 homes that Godrej Properties sold, 500 homes were sold in the second half of the month of March (including the period of lockdown) as the company focused on digital sales tools to sustain operations despite the lockdown. Residential sales for FY20 were up 14 per cent year-on-year to Rs 5,840 crore from 7,300 homes.

Parvez Akhtar Qazi and Akash Damani of Edelweiss Securities say that digital channels have provided a ray of hope for developers struggling with the lockdown, which has curtailed site visits from consumers. Companies such as Godrej Properties are enabling digital site tours, email document confirmation and verification among others, which has led to online closure of deals. Earlier, Oberoi Realty and Hiranandani group also said that they have done a few deals online.

While Godrej Properties has been able to notch up higher sales, the slowdown had an impact on peers such as Sobha. The Bengaluru-based realty player has reported sales of 0.9 million square for the March quarter, which was down 20 per cent over the year ago period. Launches in FY20, too, were weak with only 1.6 million square feet of sales as compared to a target of 3.5 million square feet. Sobha, too, has launched an online sales platform where it is offering cash backs and has been able to garner sales towards the end of March. The company may extend the scheme depending on its success.

The street is rewarding the company's operational performance. The Godrej Properties stock is up 13 per cent in the last three trading sessions as compared to the BSE Realty’s 3.5 per cent gain.

In addition to its consistent volume growth performance over the last few years, another factor that is working in favour of Godrej Properties is the expected consolidation in the sector going ahead. Analysts say, housing developers may have to take a hit on cash flows given that construction activities have come to a standstill. In this context, developers such as Godrej Properties will be able to expand their operations and gain market share. Edelweiss Securities believes that the company is best placed given its strong brand reputation and low leverage.

In an investor update on Monday, Godrej Properties said, "While the start of FY21 may be muted as the lockdown and the subsequent economic toll postpone economic activity, the company's healthy balance sheet and project pipeline will help maintain operational momentum in the months ahead."

Though there are multiple positives as far as Godrej Properties, investors however will have to be cautious given the risks faced by the residential segment. Among the key worries highlighted by Nirmal Bang Institutional Equities are defaults by home buyers in paying instalments, cancellations of bookings made by buyers and deferment of sales by potential buyers.  

This nervousness is well reflected as since the start of February, the realty index has seen a 45 per cent dip, the highest across all sectoral indices. While Godrej Properties may outperform, expect the overall index to be under pressure as slowing sales and construction delays would lead to weak cash flow situation for most developers.

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