Godrej Properties Limited (GODREJPROP) Earnings Call Transcript & Summary

So typically, what we essentially do, when we underwrite transactions agnostic to the deal structure, our targeted imputed margin metrics are very similar. The only difference is that when you actually hit the market, if it is 100% on project and the market is supporting your ability to significantly take the margin up is the opportunity available. But whether we are doing any deal today or we'll do in future with the JV project and outright, our return expectations are very similar when we underwrite a deal. It's not different for a JV project or outright for that matter.

Yes. So that's a core, the underwriting margins, which you're targeting is about 25% anyways, right?

Yes, yes. In plotted, of course, it'll be much higher. But yes, ballpark what you're saying is right.

Okay. Got it. And in the underwriting, you -- I'm assuming now you keep construction buffers maybe -- I mean if you can quantify the amount of buffer you keep in your underwriting.

Yes, we do try and keep -- but to be very frank, that's a risk to the market. In fact, if you see our pro forma, we've intentionally even shown you a scenario with 10% sort of a contingency, exactly to help one get a perspective. But eventually, in execution, our ability to manage costs will either improve the returns or could largely reduce it. But fair to say, what we are publishing in terms of the range is what we aspire to hit.

Yes. So this imputed is after factoring in the contingency or without the contingency on construction cost?

I think there obviously is some contingency figure even in the base thing that there will be some escalation that is part of the basic business planning. What we're saying is beyond that, so even the base number that we provided as actual, obviously has some factor of contingency for escalations and others. We just wanted to clearly show that this number is not something set in stone, that there is execution risk attached to this. So we've just tried to present a range which shows kind of if, for any reason, execution sees deterioration in this by, say, up to 10% of projected EBITDA, what the ratios would look like under such a scenario.

Yes, I understand that. Okay. Got it. Just very quickly moving on to business development. So you've done INR 20,000 crores this year, next year is INR 20,000 crores. So I understand you have a back book. But in an environment where, let's say, property prices are going higher than land prices, won't you want to do more BD at this point of the cycle and like slow down later? Or are you -- I mean, why are you taking such a conservative even for BD for next year, at least?

Honestly, I think our BD guidance is probably the one we pay the least attention to, if I'm being totally honest, because BD will really depend on what we are seeing during the year and the specific opportunity. There is not going to be if we see great opportunities, the INR 20,000 crores is not going to form any kind of upper cap certainly, and we've seen in past years, for example, in FY '23, where I think we guided around INR 15,000 crores and ended up doing INR 35,000 crores or so. So certainly, I wouldn't look at this INR 20,000 crores as an upper cap. And we would hope to, if we see the right opportunities, go well past those. And you're right that I think just intuitively, BD growth should be at least at replacement level. So if we see the right opportunity, I don't think we'll stop from taking them. But at the same time, I think meeting our guidance is important to us and on business development, we are quite clear that it's not something we do at any cost. So if we feel the opportunities are not correct for whatever reason, we won't be overly aggressive. And we do feel we have a good portfolio for the next couple of years in any case.

Okay. Got it. And just on this Bombay, so you've obviously scaled up nicely. But I mean your market share in Bombay will still be maybe or between, I'm guessing between #6 to #8. In terms of new project acquisitions also, Bombay doesn't seem to be that big this year at least. So how would you be thinking about this market? You've done very well in Delhi, NCR and some of the other markets. What's your strategy for Bombay? And is there a market share aspiration you have here?

Essentially, if you see even the guidance that we've given from a launch point of view, right, it's almost -- in fact, the highest launch volume that we talked about from a value point of view is in Bombay, which is about INR 9,500 crores. But coming on a bit of forward-looking and how we're looking at Bombay portfolio, if you try and see what is happening in Bombay for the last year, we'll try and appreciate the point of infection. Bombay used to be a product for sort of a dormant business for a couple of years back about INR 1,500 crores, INR 1,600 crores. And FY '23, this became almost double of that, say, for the first time, we crossed INR 3,000 crores kind of a number. And what's happened in last financial, it crossed INR 6,000 plus number, INR 5,500 crores thereabouts. So essentially, last year, we were trying to see that the acquisitions that we have done in FY '22 and '23, how are they going to pay out because there were some 7 high capital, very important transactions we did starting from projects like the Mahalaxmi project that we have, the Kandivali project we had, something in Azad Nagar, Thane and the likes of it. Now having seen that playing out really well, you would see continued momentum in Bombay. And if I just want to give you some very, very broad level sort of pipeline indicators that we have, we have something in Carmichael Road. We have something very exciting finally coming up in Worli this year. We've done something in Bhandup as a planning. We have close to INR 4,000-plus crores worth of inventory available in Kandivali projects. And then there's something coming up also in Navi Mumbai. So I think we have a very robust pipeline for this year. But I think the determination to do more is going to be a little more stronger from Bombay this year because of the last year's execution strategy kind of playing out well. So I think it's a bit of a thought-through approach that we will continue every quarter to buy land where we feel we are very confident. Then,, if it crosses a particular threshold of capital deployment and booking value available in this particular micro-marketing geography, we will wait for the launch to happen. And with success, we will, of course, double down and add more. And this has played out very well for us. If you see last year, it was -- last year it was the NCR, then it was MMR. And I think you will see a lot of action even in the markets like South and Pune this year.

Okay. All right. Very helpful. Just one last question. So on your residential projects, so you have this annexure slide. So effectively, you have to get approximately, from what I can calculate, around INR 28,000 crores is the cash. is that number broadly my understanding is correct?

Yes. Correct. Correct, Saurabh.

Thanks, Rajendra. And what is the cost to finish against it?

That we have not been giving that guidance. But then you can have a normal percentage applied, whatever is the normal construction. We always see it gives us what is our expected profit now with pro forma, you can very well do a back calculation.

Yes. But your land cost should be about 20%, 25% of sales, right? I mean that's the number...

Depends. It can range from -- anywhere from 15% to 25%. Yes, it depends on project to project.

We'll take our next question from the line of Parvez Qazi from Nuvama Group.

Congratulations for a great set of numbers. My questions are related to the cash flows. In line with the sales, we have seen pretty decent improvement in our operating cash flows. I mean, if one looks at the quarterly basis, on an average, our construction and project-related outflows have been somewhere closer to about INR 2,000-odd crores. And therefore, there is a fair bit of volatility in our net operating cash flow, depending on the collections. So how do we see on an annual basis, our operating cash flow going ahead? That's the first question. And the second, I mean, in terms of our land-related CapEx, we have done roughly about INR 5,500 crores this year. How do we see that going ahead? And consequently, what would be our debt trajectory in future?

Let me try and break it up into sort of parts. See, essential, as you rightly said, the operating cash flow is largely coming out of collections growth. If you see our collection's CAGR, it's about 34.7% and if -- what is more noticeable is to see the trend from FY '22. So from FY '22, our collection is almost doubled. And again, an interesting data point is to see points of inflection, like last year, I want to say last meaning FY '23, the quarter 4 sales was about INR 4,000-odd crores. This year, in the quarter 4, collections is more than that, right? So I think collections is following a sort of a lag of 3 to 5 quarters in every project because all our payment plans are constructionally linked. And I think the idea is that if we continue to sell well and we ensure that the collection's payment plan are very, very front-ended, your collections with the great efficiency will continue with the CAGR that we've already been seeing in the last 2, 3 years. In terms of operating cash flow, again, if you see it going at a 50% plus CAGR. Now that being said, from a future and FY '25 point of view, as you see, this is 1 year. You are -- normally, we are a little more conservative in giving us collection guidance. Last year, we gave a collection guidance about INR 10,000 crores, and we delivered something INR 11,300 crores, INR 11,400 crores. The year before that was a similar, we had given a conservative and were able to achieve. We understood that the kind of sales we'd achieved in FY '24 is very, very high quality, which has given us the confidence to kind of step out and give a relatively much higher guidance, which is about INR 15,000 crores. And I think fair to say with that kind of guidance, we will see a continued good trajectory of operating cash and there beyond. Now the second bucket, which is mostly on our ability to invest and how we are seeing debt and all, I think we've always maintained in every earnings call that our gearing ratio that we're comfortable is between 0.5 to 1:1. I think we were 0.72 in Q3. In quarter 4, we've become 0.62. In fact, this is the first quarter in the recent quarters, where we have close to INR 700 crores of free cash flow, something which previous calls, the question was being asked. So I think if we continue to be prudent, we calibrate our investment strategy to opportunity, we will maintain 0.5:1 and 1:1 with a net debt never crossing above INR 10,000 crores. So I think it's purely the growth momentum, strong asset management, very strong quality of sales and monitoring of that, which is resulting into this opportunity to have a continued trajectory of aggressive growth.

[Operator Instructions] We'll take the next question from the line of Pritesh Sheth from Motilal Oswal.

Congrats on a great year. First, again, on Vikhroli. So post Godrej Vistas launch, we can see only one project which is left with Godrej & Boyce. So that's the only project where we have MoU in place right now and then for the rest of the projects, the MoUs will follow up on a time-to-time basis. Is that understanding right?

No. The MoU is for the whole land. So we have an MoU in place for the whole Vikhroli land. There are no Godrej & Boyce forms to develop individual parts of it. It will be developed through the VM. We have Godrej Vistas, currently under development. As you rightly pointed out, there's another identified partner, which is in the planning stage and hopefully will be available to be launched immediately upon Godrej Vistas completing. There is, of course, a lot of other land that could potentially come up for development. It wouldn't be appropriate for me to comment on that in detail at this stage. As we get more visibility on exact plan from Godrej & Boyce, we'll, of course, share them after the correct time.

Sure. So anything that gets developed in the Vikhroli land would be through us as per the MoU, right?

That's right.

Okay, perfect. And secondly, on the micro market. So NCR MMR, we did well. What's your view on Pune and Bangalore? Specifically, FY '25 does look great for Bangalore in terms of launches, right? So can we assume like Pune sustaining the same run rate and Bangalore contributing to material growth next year that we are targeting?

I think you can actually count on both showing strong growth in the year ahead. I think as we look at INR 27,000 crores, we look to have another strong year in NCR and Mumbai. Gaurav spoke a little bit about the Mumbai pipeline. I mentioned in NCR, the INR 10,000 crore number from FY '24 is largely on the back of 3 launches. We have the potential for 6 in FY '25. In Bangalore, I think we have a very strong pipeline and actually, it was a little bit of a timing, where a big launch, in particular, stripped out of BO, we provide a much better FY '24 as well. We're quite confident of seeing a big number in Bangalore in FY '25. And Pune also, we have both a few new projects that we're looking forward to bringing to market that are already in the portfolio, and it will be an area of focus from a business development perspective as well. And just to add to that, both, we also have an entirely new market, which contributed nothing in FY '24, which is our Hyderabad market. So between all of those, we think there's good visibility of us getting to this INR 27,000 crores number.

Sure. And underlying assumption for FY '25 would be Mumbai and -- I mean, MMR and NCR sustaining the run rate that they had done in FY '24, or there is a growth incorporated for these 2 markets as well in those numbers? I mean, just asking from the perspective...

We will have hefty growth in these markets as well certainly.

Sure. Okay, okay. And just lastly, on the included margins. We see 27% kind of EBITDA margins. Was that margins tilted by a large contribution from NCR, either upside or downside? Or how do you expect this margins -- this margin trajectory going ahead considering other markets like Pune, Bangalore and Hyderabad start contributing to a little larger extent?

I think it's perhaps a little bit dependent on market conditions. But I think overall, these kinds of margins, we're expecting to be at the 25% to 30% is a reasonable expectation. As Gaurav said, plotted development might be a little bit higher than that. But I don't think the geographic mix will necessarily change things very significantly. It's more the project mix within each city. I think if you have more high-end projects and so forth or more right outright own projects, both can have an impact. But I wouldn't expect that if we do more in Bangalore, for example, this year, that would have any kind of negative impact on margins.

If I just to add on., Like I mentioned some time back, whenever we underwrite transactions, our return thresholds from underwriting is more or less same for all markets. Yes, of course, it's the opportunity, finally, when you hit the market, your ability to take price upside in certain markets, creates more acceleration. But I think from a long-term if you try and see, our aspiration and direction from BD is to have geographic-agnostic, similar kind of return profile.

We'll take our next question from the line of Jatin Kalra from Bank of America.

This is Kunal. Pirojsha, it's great to see the pro forma P&L out there. My first question is, once again, going back to the imputed EBIT margin. Just want to broadly understand, is the 27% number that you've registered for FY '24 broadly synchronized with the kind of opportunities you see out there on an ongoing basis. I'm trying to understand if all the price increase, which has happened in several of the markets over the past 12 to 18 months, is it already captured in this 27%? Or does it start to play out from here?

I think this is one we did an actual sales during the year for the price increases across some of the projects would be captured in this. I think it's important to keep in mind that we have seen a price increase in the sector. But honestly, this is very much exactly what we kind of expected at this stage of the cycle. In fact, if you look at it in the price increase or the pace of price increase has been much higher in markets like NCR and Bangalore, some of the Maharashtra markets like Mumbai and Pune, we haven't really seen that level of price increase yet. We might think those markets continue to pick up. So overall, I think this margin, at least in the near term is sustainable. With the project portfolio we have, we hope to maintain or improve that.

Understood. Okay. And then just again, going back to the geographical mix of bookings. NCR has broken through the ranks and contributing very nicely with the overall mix. Is that something which should continue for the next 2 to 3 years as well? I'm sure a few percentage points difference here and there is okay, but overall, are you looking at the skewed tilting in favor of any of the other markets in a big fashion or this is a fairly representative trend that we've seen in FY '24?

I see my view is this comes down to execution by the individual teams in those markets. There is no real constraint we see from an umbrella perspective to growth in any of them. Market share even in NCR would be relatively modest sales. So in terms of being able to add to that through new projects, I think the opportunity remains immense. I think, Gaurav, himself was running the NCR business. The NCR team has been doing very well for many years. But certainly, there's no inherent right say as to 40% plus of GPL business. So they'll have to execute at a very high level. I think the Mumbai team has shown the in the fourth quarter kind of what the potential here is as we get more and more projects to the market in Mumbai. I think our Bangalore and Pune teams are fully geared up and fully seen the kind of numbers NCR and Mumbai have had this year and certainly have stopped their competitive juices. So I think all teams have an opportunity. These are all big markets. We have a relatively modest market share in all of them. We have an appetite for growth, and we think our availability of capital to fund growth in all of this. So it will come down to the ability to secure the right business development opportunities, ability to consistently execute at scale. I'd say, if you're asking me my opinion for this year, I see the NCR portfolio remains very strong. And if market conditions there remain as they have been, that probably remains our largest market this year as well. But beyond that, I think it will depend a lot on business development in NCR, our ability to replenish the portfolio strongly. And of course, how well we scale up in some of the other areas happen. But overall, I think feeling pretty good about each of the key regions contributing strongly this year.

The next question is from the line of Kunal Lakhan from CLSA.

So on the cash flows, right, we've seen spend on the growth this year or rather land has been higher than our operating cash flow. And I understand the OCF will go up as the collections rise. But I'm assuming the spend on the land too will increase as you do higher BD for the replenishment. So in terms of funding of this growth, are we confident this will come through the internal accruals? Or would you look at raising capital at any point in time, especially equity?

Yes, I think we have no plans for the moment to raise capital. We would never kind of entirely rule that out, but certainly not -- we don't have any immediate plan for that. I think Kunal, your point is very valid, but I think it's important to keep in mind that we are doing exactly what we said we do, which is we'll raise capital first. We'll then effectively go out and do business development disproportionate to our then scale, and that will release results in an increase in debt. And in fact, even when we were raising the capital, we said we think it would be mismanaging the business to operate at under an gearing level of 0.5:1, given the kind of opportunities. So we've done that. We -- as a result, I think demonstrated that booking value growth can be very disproportionate through that strategy, and we have now 2 years, 1 year of 55% growth in bookings, 1 year of 84%. If you look at, as we've shown in the chart, the share of bookings attributable to Godrej Properties and those growth rates increase further. So that is going to require investment. Now if we slow the account to kind of more 20% kind of growth, the amount of business development you need to do as a proportion of your current size will not be as much as it was 3 or 4 years ago. So you will see that ratio improving. We are not, however, very fixated, as we said multiple times, on very large free cash flow generation at this point. We could have obviously generated more free cash that we did. Last year, we chosen to invest a little less on business development. We think from a long-term value creation perspective, rapid growth and market share gain is a much stronger lever for us than kind of in your cash flow generation because I think that scale is giving us huge economies of scale, huge ability to generate cash on a much larger way. And hopefully, a quarter like the one we just had is indicative that when things are firing, you will see free cash even with a lot of business development. And that's certainly the goal. But we would quite intentionally not say that we will limit our business development to ensuring that it's lower than free cash because we don't see that as a requirement. We think the company has a strategic advantage in its access to capital, including debt at low cost. And that having some debt on the balance sheet is an entirely intelligent part of making the best of the opportunity for growth that's available in the sector. As Gaurav rightly pointed out, we don't want to get carried away with that logic and have a balance sheet that puts the company under any kind of stress, which is why we've indicated this range of 0.5:1 to 1:1. But honestly, we were seeing free cash flow generation becoming so high that the debt was rapidly coming below 0.5:1. That would be a time for us to look at increasing investments. But of course, also calibrating and making sure that we're comfortable with the investments. We don't want to see making investments to make investments. We have to be confident that we're making the right investment at the right time in the cycle. That we're confident irrespective of how markets does, we'll still be able to generate the return on those investments. So I think all of those are factors in our mind as we kind of look to calibrate business development versus free cash generation.

Understood. On -- a quick one on the deal again, the restructuring rather. So on the noncompete, right, any restrictions for GPL to -- on signing projects in, say, locations in Central Mumbai or central suburbs, rather which are in and around Vikhroli outside of the land owned by GMV. Any restrictions for us?

No. There are absolutely no restrictions on GPL or any kind to do any kind of property development in part of the country or any part of the world for that matter. I think what some media has reported that there could be competition from another Godrej to real estate company, et cetera, is also entirely inaccurate. As I've explained, the Godrej & Boyce development using the Godrej brand will be limited to lands already owned today, the biggest of which is, of course, Vikhroli, which will be developed through Godrej Properties. And the reciprocal of the business that they have it there for that we cannot encourage is construction, where we cannot use the Godrej brand even after 6 years, except, of course, if we're doing our own captive construction, there's no prohibition against that.

The next question is from the line of Rohit Gupta from Fullerton.

Can you hear me?

Yes, Rohit. Go ahead.

Sorry, my question on same as Kunal, you already answered.

Ladies and gentlemen, we'll take that as the last question for today. I would now like to hand the conference over to management for closing comments. Over to you.

I hope we've been able to answer all your questions. If you have any further questions or would like any additional information, we'd be happy to be of assistance. On behalf of the management, I once again thank you for taking the time to join us today.

Thank you.

Ladies and gentlemen, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.