Godrej Properties

IPO Investors Can Stay On For Further Gains; New Investors Can Use Dips For Entry

 

THE Mumbai-based Godrej Properties listed at Rs 510 on the BSE at 16% premium to its issue price of Rs 490. The stock made an intraday high of Rs 586.7 and a low of Rs 500 to close at Rs 534.7. The fact that the stock listed at a premium despite being richly valued attracts attention. Indeed, it is one of the rare IPOs in recent times to have closed the trade at premium. 

   This could be attributed to various factors. The Godrej Group has a past pedigree of a strong financial background with 20 years experience in realty business. There is more clarity on the way the management would focus on real estate development. Going ahead, the company is aiming at becoming a major revenue contributor to the group turnover. Moreover, it also hints at a better year for the sector as it underperformed the broader market in the past one year. In fact, Godrej Properties' listing has instilled a lot of confidence in other real estate companies that are looking at approaching the primary market as this shows that there is still investor appetite for real estate, provided there is proven past track record and a good future plan. 

   Godrej Properties has announced the launch of a 35-acre mixed-use project in Vikhroli. About 50% of the above project would be office space, and the remaining 25% would be used for residential and retail use, respectively. This would be in joint development with 60% profit accruing to Godrej Properties. The balance would be Godrej Industries' share after adjusting for stipulated payment of lease rental to another group company. Going ahead, the company is looking at launching another 1-million sq ft residential structure ranging between Rs 20-40 lakh in Ahmedabad. This is part of the 30-million project that will be developed over a period of 10 years. Looking forward, residential sales would be a key contributor to the company revenue as it will continue to develop office and retail space. 

   The post-issue valuation of the company comes to 17.9x to 19.3x of its annualised estimated earnings of FY10. It current market capitalisation stands at around Rs 3,733 crore, making it the seventh-largest realty company by market valuations overtaking the likes of Parsvnath and Puravankara. The company's operating and net profit margins stand at 60% and 41%, respectively, and the management expects to deliver similar margins in future despite the focus on affordable housing due to large volumes. IPO investors can continue to hold the stock and new investors must keep an eye on any dips to enter the stock. 

   The company raised around Rs 500 crore through its IPO to be used for land acquisition, construction activity and towards payment of loans. The company does more projects on joint development basis (77% of developable rights) than owning land on its own balance sheet, thus following an asset light model.