Expansion Into New Micro-Markets And Successful Launches Will Drive Long-Term Shareholder Value

Key Takeaways

• Significant pre-sale and profit growth, along with successful project launches, indicate potential for continued strong revenue and earnings growth.
  
• Strategic expansion into new micro-markets and capital raises could enhance margins and market presence, driving long-term shareholder value.
  
• Heavy reliance on premium market price growth and risks from cooling real estate sales, rising land prices, and regulatory delays pose challenges to margins and revenue.

Catalysts

Engages in the real estate construction, development, and other related activities in India.

• Godrej Properties has experienced significant pre-sale growth in the first half of FY '25, with bookings increasing by 90% year-on-year. The company's ability to consistently launch successful projects and maintain high levels of bookings could lead to continued strong revenue growth.
  
• The strategic acquisition of favorable business development terms and the expansion into new micro-markets, like Indore, suggests an opportunity to improve net margins by utilizing competitive advantages in less saturated markets.
  
• Godrej Properties' high EBITDA growth of 167% and net profit increase of 345% in the first half indicate a strong potential for earnings growth as efficiencies in operations and scale are realized across new projects.
  
• The company’s ongoing business development success, with 10 new projects added so far in FY '25, could drive long-term revenue growth and increased shareholder value as these projects are launched and sold.
  
• Planned capital raises intended for further scaling operations and the acquisition of additional strategic land banks could support accelerated earnings growth by enhancing the company's development pipeline and increasing market presence.

Godrej Properties Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Godrej Properties's revenue will grow by 45.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 38.7% today to 21.6% in 3 years time.
• Analysts expect earnings to reach ₹23.7 billion (and earnings per share of ₹87.48) by about December 2027, up from ₹13.9 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₹39.6 billion in earnings, and the most bearish expecting ₹7.7 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 58.5x on those 2027 earnings, down from 63.2x today. This future PE is greater than the current PE for the IN Real Estate industry at 27.7x.
• Analysts expect the number of shares outstanding to decline by 3.44% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.69%, as per the Simply Wall St company report.

Godrej Properties Future Earnings Per Share Growth

Risks

• The potential cooling off in real estate sales could signal a future decrease in booking values and revenue growth if market conditions shift adversely, impacting earnings.
  
• Rising land prices and limited supply in certain regions like Noida and Gurgaon could diminish margins if property price increases do not keep pace, affecting net margins.
  
• Construction cost increases in the mid to late stages of projects may affect cash flows if not matched by timely sales and collections, impacting operating cash flow.
  
• Delays in construction due to regulatory or environmental factors, such as those experienced in the NCR region due to National Green Tribunal guidelines, could lead to increased costs and hinder revenue recognition.
  
• Heavy reliance on exceptional price growth in premium markets like Mumbai, Bangalore, and NCR could pose risks if these markets experience saturation or cooling, potentially challenging revenue and profit forecasts.

Valuation

• The analysts have a consensus price target of ₹3309.11 for Godrej Properties based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹4200.0, and the most bearish reporting a price target of just ₹2113.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be ₹110.1 billion, earnings will come to ₹23.7 billion, and it would be trading on a PE ratio of 58.5x, assuming you use a discount rate of 15.7%.
• Given the current share price of ₹2912.9, the analyst's price target of ₹3309.11 is 12.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.