Despite underperformance, Godrej Properties remains a good player in realty sector

Due to its strong brand name, Godrej Properties typically quoted at a significant premium to other players, the reason analysts avoided it by giving it a low rating. However, the company’s underperformance during the past year has brought its valuation to a more reasonable level. This probably explains why an increasing number of analysts is warming up to this counter, with the consensus analyst rating of Godrej Properties going up from 2.31 to 2.57 in the past month.


In addition to the company’s illustrious parentage and clean management, the strong operational performance in terms of successful launches and increasing sales in the recent past, should provide support to the stock, ending its underperformance soon. Godrej Properties has nearly 48 million sq ft of projects under development across major cities like Mumbai, Delhi, Chennai and Bangalore, besides a strong launch pipeline for the next few quarters.

Unlike most real estate developers, who try to build a land bank, Godrej Properties follows the asset light model of joint development with land owners. Popularly known as ‘your land, my development’, the model helps Godrej Properties utilise its capital efficiently. For instance, the recent launch of commercial project at Bandra Kurla Complex (BKC), Mumbai, is a joint venture with Jet Airways.

The company is also adopting the development management (DM) model, wherein it will charge a fee from its partners (about 10% of the sale price) without making any additional investment.

So, it managed to report better-than-expected earnings growth in third quarter of 2012-13 due to higher development management fees. Though the company has not seen high debt levels, it is on a debt reduction exercise and succeeded in reducing its net debt/equity ratio from 1.1 in September 2012 to 1 in December 2012. With a positive operational cash flow, this is the second consecutive quarter of debt reduction. A similar trend is expected in the coming quarters.

Selection methodology: We pick the stock that has shown the maximum increase in consensus analyst rating during the past month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weightages to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in the rating indicates that the analysts are becoming more bullish on the stock. To ensure that we pick only companies with a decent analyst coverage, this search is restricted to stocks that have been covered by at least 10 analysts.