Motilal Oswal puts 'neutral' on Godrej Properties

RESEARCH: MOTILAL OSWAL

RATING: NEUTRAL

CMP: Rs 762

Motilal Oswsal initiates coverage on Godrej Properties (GPL) with a `Neutral’ rating. GPL is a focussed mid-income housing player, with a pan India presence and a differentiated business model. Almost 77% of GPL’s land bank of about 50 msf comprises joint development (JD) projects. The JDA approach allows GPL to enjoy a low risk, low capital intensive business model.

The advantages of GPL’s model are reflected in its superior RoEs. Several real estate (RE) players have been trying to position themselves as pan-India players. The Godrej group enjoys tremendous brand recall and trust across the country. Motilal Oswal expects GPL to trade at a premium to NAV due to its strong growth visibility, asset-light model and brand equity.

GPL currently trades at 46% premium to FY12E core NAV and 10% premium to option-adjusted NAV. It is richly valued at 4.6x FY12E BV of Rs 167 and 24x FY12E EPS of Rs 32. Going forward, the key catalysts which could further re-rate GPL are: (i) traction on disclosed MoUs, (ii) visibility on development of other group land bank (particularly at Vikhroli) and (iii) continued momentum on new third party JD projects.