Godrej Properties Limited (GODREJPROP) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Godrej Properties Q1 FY 2027 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kshitij Jain from Investor Relations. Thank you, and over to you, sir.

Thank you, Raghav. Good afternoon, everyone, and thank you for joining us on Godrej Properties Q1 FY 2027 Results Conference Call. We have with us Mr. Pirojsha Godrej, Executive Chairperson; Mr. Gaurav Pandey, Managing Director and CEO; and Mr. Rajendra Khetawat, CFO of the company. Before we begin this call, I would like to point out that some statements made in today's call may be forward-looking in nature. The forward-looking statements are based on expectations and may involve risks. The outcome may differ materially from those suggested by such statements, and a disclaimer to this effect has been included in the results presentation. I would now like to invite Mr. Pirojsha Godrej to make his opening remarks. Over to you, Pirojsha.

Good afternoon, everyone. Thank you for joining us for Godrej Properties First Quarter Financial Year '27 Conference Call. I'll begin by discussing the highlights of the quarter, and we then look forward to taking your questions and suggestions. GPL achieved a booking value of INR 8,651 crores, a year-on-year growth of 22% from the sale of 3,738 homes with a total area of 6.2 million square feet. This is the sixth consecutive quarter in which GPL has exceeded INR 7,000 crores booking value. Booking value in the first quarter was driven by strong demand in several new project launches, including Godrej Vanantara, which had INR 3,237 crores of sales, Godrej Samaris in Gurugram, which had INR 1,248 crores of sales and Godrej Brooklyn Avenue in Hyderabad, which was launched right at the end of June and sold INR 300-odd crores in June and has sold a similar amount since then. Incidentally, Godrej Vanantara is the third project in Bengaluru to achieve a booking value of more than INR 3,000 crores in the last 3 years. Bookings contributions were led by Bengaluru at 44%, followed by MMR at 21%, NCR at 18% and Pune and Hyderabad at 11% and 5%, respectively. GPL has thereby achieved 22% of its annual guidance for booking value for the financial year. Collections in the first quarter stood at INR 4,348 crores, year-on-year growth of 18%. Operating cash flow in the first quarter stood at INR 399 crores, a decline of 58%. Direct construction spend increased by 41% year-on-year in quarter 1. While OCF in Q1 was very weak, we expect our operating cash flow to meaningfully increase in the rest of the year and grow to approximately INR 9,000 crores for the full year. GPL added 3 new projects with an estimated saleable area of approximately 8 million square feet and expected booking value of INR 9,500 crores. With this, we achieved 48% of annual guidance for business development in the first quarter. For the first quarter, the total income declined by 16% to INR 1,337 crores. EBITDA declined by 40% to INR 545 crores and net profit declined by 42% to INR 350 crores. This is because we had only one project completion in Q1, and that was of a DM structure project. We remain on track for 13.5 million square feet of delivery in the full year and for achieving 20% ROE in financial year '28. With a robust launch pipeline and strong balance sheet, we are confident of delivering another strong year. On that note, I conclude my remarks. Thank you all for joining us on the call. We'd now be happy to discuss any questions, comments or suggestions you may have.

[Operator Instructions] Your first question comes from Puneet with HSBC.

Congrats on good sales bookings here. My first question is with respect to your view on the various markets that you operate in. Which markets do you feel more excited about? Where are you bit worried? And how are you thinking about business development in those areas?

Thanks for the question. One of the interesting things we've seen from a data perspective at an aggregate level, right, that the first 6 months H1 performance for overall Indian residential industry has been very strong. I think the only laggard in the game from a quarter 1 perspective, pan India would be, give or take, Gurugram, which also I think quarter 2 would see a good uptick because the supply has not hit in Gurugram as much in quarter 1 than we expect in quarter 2. But you'll be surprised that in many markets, the absorption has increased between 10% to 25% level. It's quite a strong aberration. So I think overall market seems to be quite strong. From a relative perspective, I would say Bangalore and Hyderabad and Noida clearly doing exceedingly well as markets. I think Bombay, it is, I would say, core Bombay, which is western suburbs, micro markets of South Bombay and Thane are doing very strong. These I would say are highly attractive markets. But early days, even Pune is looking slightly better than what it was, say, in the last 2-odd years. So I would say when we were entering the year, I was thinking that we would be an outlier. There could be a very different market, but the year has started with a very strong growth for the marketing in general and of course, for us.

Understood. And on the cost side, have you been feeling any impact of cost increases, availability of labor, et cetera, given that you have now scaled up massively and there has been some chatter about minimum wages going up, et cetera?

It is a 2.6% minimum wage or so some markets that have hit, but broadly, nothing that was not planned for because wage rate inflation is a very predictable event. And when you buy land, especially in the model that we have, we do model the typical wage rate inflation. But I think the entire Middle East crisis did have an impact. If you remember, we even discussed this point in the previous earnings call. I would say we were seeing a slightly strained scenario, a very secular strained scenario till about May end. From June and now, I would say there is some amount of change happening, still early. Yes, relative to, say, a position of February, there is a cost inflation, but there are some very encouraging signs. Like the steel cost has, give or take, reduced by almost 12% in between, say, to even February cost base. Even items like lift systems have seen a marginal cost drop, but things like aluminum have shot up. Tile availability was a huge challenge in April and May and marble availability. That supply side issue has got resolved, but there is -- and there is some amount of price drop also we've seen both in marbles and tiles. But relative to February, still inflated. So I would say as and when we would see in the coming months, supply side getting more and more -- recognizing the supply side constraints getting over, I would say the cost drop will happen. But I mean nothing really worrisome. I would say about May, if you ask me the same question, I would have been more worried on the trend, but now the trends have started reversing.

Understood. And you have a significant amount of projects ready to get completed in FY '28. What percentage of inventory would still be unsold for those projects?

I wouldn't know the -- yes, aggregate number of it, but if you just see the specific -- talks about the 16 projects, we have added on the sixth slide. The INR 40,000 crore booking value that we said is more or less, is basically already sold out. It's not that we have a huge inventory because most of these are stellar projects. Like Aristocrat, 98% is sold out. Reserve, we sold more than INR 6,000 crores of inventory. [indiscernible].

[indiscernible] presentation actually has all the details for specified projects.

Yes.

The next question comes from the line of Gaurav Khandelwal with JPMorgan.

My first question is on business development. So we've done close to INR 9,500 crores, INR 10,000 crores in first quarter itself. And I'm assuming a lot of this would have been known by the time we had given FY '27 guidance of INR 20,000 crores. So what's the -- do you think this year would again be one of those years where we meaningfully overshoot the BD development guidance? And what is the kind of pipeline that we are looking for at least in the next 1 to 2 quarters where you would have a more better visibility? That's my first question. I'll have one more follow-up after this.

Sure. On business development, actually, now we didn't have any idea about when we had our last -- when we were issuing the guidance. Actually, the big contributor to this INR 9,500 crores was a INR 7,000 crore land in Noida, which we won an auction subsequent to that. So I think that was again the main contributor. I think we said that on business development guidance, we've intentionally put out a fairly conservative number because we don't want to have any pressure or requirement to do business development just to meet any guidance. We've also said that I think thinking about business development is more of a replacement for sales is probably roughly where we think a healthy level of business development would be. Our sales for this year's guidance was a lot higher than business development. So I think somewhere in that range is where we would expect to end and Q1 is therefore quite in line with that.

Got it. But just to understand this better, in that context, what are the key risks outside of business development to the FY '28 positive FCF that you mentioned in this quarter's presentation?

I think that is the key risk, if you want to call it that. But let's say obviously, we think we're only putting in capital when projects are going to generate higher than 20% IRR. So generally, we feel adding new projects is very positive because we are meeting our regular kind of threshold. But that to me would be the big risk if we did overshoot that. So I think we're quite clear also both in terms of what stakeholders would like us to do. And we think that the operating cash flow will be strong enough to ensure very robust business development plus some free cash flows next year. I think the only other is very substantial project delays or very huge kind of cost overrun because of the global situation worsening or things like that. But those would be, let's say, relatively small risk in our view.

That's very clear. My second question is, how are you looking at the activities of NRI customers coming back to the market? Have they come back to what the quantum of business activity with them was prior to the Middle East war? Or do you still think these are still early days?

First of all, we've not modeled historically our sales on NRI per se. Give or take, we have like a 10% sort of NRI sales. So we were fairly insulated. Doesn't create either a major upside risk or a downside risk for us. That being said, I would say there is a structural shift we are seeing within NRI market, more specifically in the Middle East side. I would say previous to the crisis, right, India was more of an opportunity for NRI customers to look at as an investment base for India. And give or take, their horizon of investment, say 2 years, 3 years, 4 years, was the typical way of them looking at India. And I'm talking about the bulk of the community. I think that is fundamentally getting changed. It's still very early because a lot of people are now looking that maybe Middle East is not the safest place anymore, so should they look back moving to India? What should they do outside? Those conversations have happened and I think the closest parallel, I would say it's very premature to say that, but something like COVID, right, that the triggers to demand after COVID was largely psychological and that totally shifted the demand patterns for the core property market. I think this is an interesting situation to sort of draw a parallel and study that. I think it's very early, but yes, the quality of conversations has really shifted from the Middle East market. Barring Middle East market, I think it's pretty much business as usual. A lot of people are looking India as a good place to invest purely from a long-term currency hedge, and people want to buy properties for their parents or come here back for retirement. So that kind of is more or less similar.

Got it. And if I just can ask one more question. In terms of the KPI for top management, what are the top 2, top 3 things which have the highest weight on the scorecards? Is it market cap? Is it free cash generation? Is it ROE? Just to get some sense.

Yes. Sure. We have 4 key metrics that we use for incentives for the team. The first of those is cash collection. So that is -- we've purposely chosen collections instead of operating cash flow because we think collections encourages overall speed of delivery, which is good for customers, good for long-term health. Whereas OCF can also sometimes in the short term be achieved by cutting down on construction costs in parts that are not increasing immediate collections. So we think collections is a better cash metric. So that's the one we've used. We also have imputed profits, which incentivizes both bookings growth for the company as well as margin creation and margin enhancements. That imputed profit is multiplied by what we call our asset management factor, which either rewards or penalizes the teams based on enhancement or reduction in existing locked-in profits. So that's the second bucket. The third is reported profits, where honestly, I think it was more to bring in the discipline and focus on this mattering over the long term. I think there's not very much teams can do other than project development, et cetera, to move and faster delivery to move in your profit, but we think helpful in creating that trajectory. And the fourth is a Net Promoter Score where we measure customers' ratings of -- directly from our customers rating of their experience with us, and that's, of course, to incentivize quality customer service and long-term brand enhancement.

Got it. That's very helpful. And is there any discussions of switching to a percentage completion accounting from the PCM one currently?

Gaurav, shifting to percentage completion.

No, we think it will be very complicated. Our view is that in certain jurisdictions like Haryana and Karnataka, the RERA rules don't support the use of percentage completion accounting. Maharashtra, of course, it is easier to do that. So no, given our national business, we feel that we'd either probably have to maintain different types of accounting standards in different geographies, which we think would just add to the confusion. We, of course, over the last couple of years, have introduced imputed profits and are publishing those on an annual basis to help signal to markets what our operating numbers look like. Those are more in the direction of percentage completion versus project completion. So hopefully, investors can get a decent sense of where things are basis, one, operating cash flows, two; imputed profits. And hopefully, as some of the newer projects finally start reaching revenue recognition towards the end of this year and largely next year, we'll also get a sense of reported profits. So no plans to switch the accounting.

The next question comes from the line of Abhinav Sinha with Jefferies.

Sir, first question on the construction outflow, which has scaled up now to around INR 2,250-odd crores. Where do you see this settling by the end of the year?

Difficult to exactly comment on the exact number. But I mean, if you look at -- I don't think we've published this number, but give or take the percentage that you saw last year, we will try and mimic something closer to that. I would say between 30% and 40% is the ideal range to almost ensure that next year PAT is certain. But of course, in projects, certain projects, the outflow will be more on core and shell. Certain projects could be more in finishing and they both have very different outflow streams, right? But I think fair to say, every quarter, you'll see a base effect between 20% to 40% range of quarter-on-quarter, year-on-year sort of a growth. And that's what we ideally would aspire to do, all things remaining there. I think NGT could be a period where, depending on how much the ban period is a sort of unpredictable COC line item for the year. But that said, I'm very confident that we'll see a very good spike on COC and also operating cash by the end of the year.

Okay, sir. Got a second question on sales. So you -- I mean presales basically, you have earlier said that you would like to have smoother sales across the quarter. Now, looking at the launch pipeline, how do you think this year is going?

I think, Abhinav, we started at a very good note. To be very frank, quarter 1 is usually the slowest for us, purely because teams go above and beyond in quarter 4 and people, as you know, children have holidays, so people travel a lot. So -- and approvals also, everybody tries to push as much for launches in the quarter 4. But I think this year, what we did fundamentally different in quarter 11 was to focus on sustenance fairly well. And if you see, while the quarter overall number is quite exciting, especially from a peer group point of view, 41% or so came from sustenance sales. So I think we have a good launch pipeline throughout the year. The big ones which are immediately coming are like the Bandra launch, which we've seen what Worli has done to our portfolio and to the city. I have very high expectations from Bandra. And similarly, Golf Extension Road is a huge launch, which will come in Gurgaon. And then there is a couple of launches in Bangalore, Hyderabad and Pune. But to be very frank, sometimes it's extremely difficult to predict launch exact time line. So the controllables, therefore becomes -- there are some thresholds of time lines we define internally for RERA approvals. And so there is a launch activation model that we follow. But if those tend to get breached because of approval delays, we start shifting our focus more towards sustenance. So there will be a degree of predictability on quarter-on-quarter performance. But yes, I mean, there could be some quarters which, because of lumpy launches, could see an exponential jump, but there would be a minimum threshold we would like to maintain quarter-on-quarter, something like we've done for the last maybe 6 quarters, we've delivered always INR 7,000 crores sort of a number. That's sort of almost like an internal bare minimum we always have, and endeavor is INR 8,000 crore, INR 9,000 crore, INR 10,000 crore sort of trajectory and then taking these launches maybe even further. So that's the broad -- I don't want to commit to a number per se right now, but I mean that's the thought process we model ourselves when we look at a quarter.

Great. Sir, one last question. So on -- I mean, you've given an FCF positive guidance and put some numbers also for FY '28. How do you think FY '27, we should see net debt moving in the next 3-odd quarters?

Yes, Abhinav, I think it could be a little bit up and down, depending on how much BD happens and what's the exact collections quarter-by-quarter. I would say roughly to get to the INR 24,000 crore collections and INR 9,000 crores OCF we've guided for this financial year, I think there'll be a buildup through the year and Q4 will probably be the strongest of the 4 quarters. You will see Q2, I think, significantly better than Q1. Q3 should be better than Q2 and then Q4 should be quite strong. I think there's a decent chance even in the rest of FY '27, we will be free cash flow positive unless we do a very high level of BD, because I think that the remaining collections for this year, just in the last 3 quarters, are about equal to our total collections last financial year. I think there is good opportunities. But I think honestly, the main focus for this year is to make sure we make a lot of construction progress. Some of those collections will, of course, come this year, but a big portion will also be happen next year upon delivery. So I think that's priority #1. And while we know the market is very focused on this free cash flow number, and we are too, but we want to balance that with the opportunities we see for growth at the same time. We think on the large base we've established, if we're able to next year report a 20% ROE and also report 20% booking value growth, we do think that will be well appreciated at that stage. We think the market is perhaps a little more focused on efficiency right now than growth, because they have more evidence from us in the last few years of the growth than the efficiency. But we are -- seeing the internal numbers, we are quite confident and convinced on the efficiency. Therefore, we don't want to overcorrect to respond to the market and kind of not also capture the kind of growth opportunity between us that is present. So we do want to keep these 2 things in balance. We've already said that we would look at INR 10,000 crores net debt as a cap that we would not like to exceed, and we'll work to make sure we stay within that. That said, I think there's every chance that even in the next 9 months of FY '27, we could be free cash flow positive, and we'll of course, unless we're seeing really exceptional business development opportunities, endeavor to do so. But I think FY '28 is the year that we feel, even if we see great BD opportunity, just given the scale we're likely to have of operating cash flows, we're very confident that, that year we will be free cash positive. And I think it, for us, isn't an absolutely critical deliverable to do that this year so long as we're keeping our net debt broadly in check and we're confident that the BD we're doing will deliver strong growth. I think, obviously, last year was a good BD year for us, and we hope to demonstrate the value of that through having a great booking performance this year.

The next question comes from the line of Pritesh Sheth with Axis Capital.

In terms of launches, maybe if you can just highlight on the GDV across the next 3 quarters, we have balanced launches of INR 37,000 crores, INR 38,000 crores. We had almost 11,000 crore of launches this quarter. Q2 would be similar or slightly better? And then obviously second half is expected to be quite better, but just trying to understand how should we think about the trajectory that is.

Pritesh, I would say there is an entire launch set of approvals, which just like in quarter 1, we were adding, right? So let's see where exactly, which dates we get it. Actually, if you ask me, the big ones seem to be on track. Depending on the day we get the approvals, we'll take a call whether it makes sense to launch and push this within the quarter or would it make more prudent sense to do it the next quarter. I think the 2 big ones are Bandra and GCR Extension, and they have a meaningful impact on absolute performance. But these are all -- both are very high-margin products. So we don't want to necessarily just to compensate for a number, push them either this quarter. We would like to see if the approvals come in the next 15 days, we will push it within the quarter. If it takes more time, we might take a call to do the next one. But there are some approvals which seem to be on track and have already come, and we are doing good things in that. You would be happy to note that projects which we got almost towards the end of the last quarter, like there was a project in Hyderabad, which did about INR 300-plus crores has already crossed INR 650-odd crores in this -- the cumulative sales by now. Samaris has crossed INR 1,500 crores as we speak. So I think there is some amount of launches of last quarter towards the later part, we will continue to see growth. So I think we'll take a judgment call somewhere, I would say, third or fourth week of August, looking at the approval timing. But fair to say the overall launch calendar, 15 days here and there aside, is absolutely on track and looks very promising.

That's helpful. So the bigger ones, Bandra and Golf Course Road, would be either Q2 or Q3, not Q4 is what one should assume?

Q2 or Q3, no Q4. I think it's either within this quarter or maximum next.

Okay. Fair enough. And second on -- firstly, thanks for the free cash flow guidance -- cash flow guidance overall and the free cash flow target. Just one question on that. I mean, obviously, there would be some collections, cash flows arising out of next year's sales number. Have you still assumed the growth over this year's base to arrive at those cash flow numbers? Or just directionally what are we thinking in terms of how our business is going and how much sensitivity is there if, let's say, on presales, we flatten out next year, how much impact it could have on that INR 11,000 crores, INR 12,000 crores OCF that we are probably expecting next year.