Godrej Properties Limited: [ICRA]AA (Stable) assigned to Non-convertible Debenture Programme

ICRA Limited has assigned 'AA/Stable' rating for the proposed Rs. 1000 crore Non-Convertible Debentures Programme of Godrej Properties Limited.

The assigned rating draws strength from the current availability of liquidity in Godrej Properties Limited (GPL) in the form of cash and liquid investments of Rs. 2,571 crore as on March 31, 2020. The rating factors in the robust bookings achieved in GPL's residential project portfolio with total area sold and booking value for FY2020 standing at 8.8 million sq ft (as against 8.76 million sq ft in FY2019) and Rs. 5,915 crore (against Rs. 5,315 crore in FY2019). The bookings have been supported by strong traction witnessed across projects i.e. new launches during FY2019 and FY2020 as well as existing projects (launched before March 31, 2018). This helped the company to report total operating cash inflows1 of Rs. 4,276 crore in FY2020, while rendering visibility to future collections from the pending receivables. Pending customer collections from sold inventory at the end of March 31, 2020 stood at ~Rs. 11,500 crore, thus, providing adequate cash flow visibility in the near-to-medium term. The rating notes its strong parentage by virtue of being a part of Godrej Group, with access to land holdings of Group entities. The net debt, at consolidated level, reduced to Rs. 1,159 crore as on March 31, 2020 from Rs. 2,141 crore as on March 31, 2019, on the backdrop of the equity infusion of Rs. 2,100 crore in Q1 FY2020. ICRA takes cognisance that the funds raised thereof will be utilised mainly towards investments in new projects. Nevertheless, the same provides strength to GPL's liquidity position in the near-term.

Notwithstanding the significant launches, enhancement of project portfolio and the sales traction witnessed in FY2020, a proportionate ramp-up in collection remains to be seen. Further, the collections from projects have increased in FY2020 over FY2019. ICRA notes that most of the projects are at present in the initial to intermediate stage of construction with a predominant portion of collections linked to construction milestones. The collections are expected to ramp up in line with project execution. The rating is constrained by considerable expansion in the development portfolio undertaken by the company in the recent past and aggressive plans to further enhance the portfolio. As on March 31, 2020, GPL has more than 12 million sq ft area yet to be sold, with aggressive plans to launch new projects using the funds raised through the qualified institution placement (QIP) in June 2019. GPL's ability to ramp up the execution and deliveries in line with the proposed expansion of its portfolio will remain a key monitorable going forward. Additionally, the company's profitability and return indicators, though improved sequentially, remain at moderate levels, restricted by low margins in some of the legacy projects. The profitability in the recently acquired projects is expected be supported by its better bargaining power. ICRA takes cognisance that GPL is taking measures to improve the return indicators in the new project transactions. However, translation of the potential into financial performance will remain a key rating monitorable. Further, the proportion of short-term debt to total debt remains high. While it has helped the company to maintain the average cost of borrowing at 7.85% as on March 2020, GPL remains exposed to refinancing or rollover risk. The risk is mitigated to a large extent by the healthy liquidity as well as the financial flexibility enjoyed by the company as a Godrej Group entity.

Due to the coronavirus pandemic and the pan-India lockdown, contagion fears and economic uncertainties are expected to impact the operations and cash flows of real estate developers, which might ultimately result in a weakening of credit risk profile of real estate developers. The demand is expected to witness moderation and committed receivables from already booked sales are likely to be impacted, given that milestone-based payments may get deferred and some buyers may delay payments on account of economic uncertainties. However, GPL's healthy liquidity and established brand name mitigate the risk to an extent. ICRA expects that GPL will benefit from the current market consolidation, where the share of large players with execution performance and strong brand is anticipated to increase.

The Stable outlook on the [ICRA]AA rating reflects ICRA's opinion that GPL will continue to benefit from its extensive track record of operations, strong parentage, established brand and professional management. However, ICRA will continue to monitor the overall impact of the Covid-19 pandemic and the possible impact on the company's operating metrics and credit risk profile.

Shares of Godrej Properties Ltd was last trading in BSE at Rs.835.2 as compared to the previous close of Rs. 818.95. The total number of shares traded during the day was 36225 in over 1524 trades.

The stock hit an intraday high of Rs. 843.05 and intraday low of 781.6. The net turnover during the day was Rs. 29699659.

Source : Equity Bulls

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