| Godrej Properties Limited | ||
| Rating Reaffirmed | ||
| Rating Action | ||
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| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL A1+’ rating on the commercial paper (CP) programme of Godrej Properties Limited (GPL; a part of the Godrej group).
The rating continues to reflect GPL’s strong market position backed by an established brand, strong execution track record and healthy saleability and robust financial flexibility owing to parentage of the Godrej group. The rating is also supported by healthy financial risk profile. These strengths are partially offset by exposure to refinancing risk, and susceptibility to cyclicality inherent in the real estate sector.
GPL witnessed strong sales of 10.8 million square feet (sq. ft) valued at Rs 6,725 crore in fiscal 2021. The momentum is expected to continue with new launches over the medium term. The total saleable area as on 30th September 2021 is ~186 mn sq. ft. The company has already achieved sales of 4.38 million square feet with sale value of Rs 3072 crores in H1 2022 despite subdued sales in Q1 2022 due to the pandemic. Construction activity has progressed at a healthy pace as well– workforce count stood at 164% of pre-pandemic level by September 2021, and this should support future sales and collections. Consequently, collections remained strong at Rs 4,367 crores in FY21 and Rs 3006 crores in H1 FY22
GPL raised Rs 3,750 crore through QIP in March 2021 to expand business and support future growth. Leverage indicators have improved substantially with inflow from QIP and strong performance in FY21 leading to strong cash balances – gearing was at 0.55x as of March 31, 2021 down from ~0.78x in fiscal 2020 (0.57x as on Sep 30, 2021) – i.e., translating into debt-to-total assets of 34% as of September 2021 (down from 44% in Sep, 2020) (CRISIL estimates). Net gearing was negative 0.07 times in March 2021 and negligible as on Sep 30, 2021. Cash flow position remains healthy, while debt-to-total assets ratio is expected to be modest at below 30% over the medium term as compared to 44% as on September 30, 2020 (CRISIL estimates). While debt is expected to increase gradually to support increased outflow towards business development and construction expenses for new projects, debt-to-total assets will improve given consequent asset creation. Liquidity is also sufficient, with cash and equivalents of ~Rs 4,750 crore and undrawn bank lines (including unutilized CP limits) of ~Rs 800 crore as on September 30, 2021. With the pandemic persisting, ability of GPL to ensure operational normalcy and keep debt and leverage metrics at adequate levels will be key monitorables. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of GPL and its subsidiaries, JVs and associates (based on the consolidated financials of GPL group). This is because these entities, collectively referred to as GPL, have common promoters and are in the same business. (Please refer annexure - list of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation)
The rating factors in the benefits from proactive management and synergies derived from being a part of the Godrej group.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation |
Key Rating Drivers & Detailed Description Strengths:
GPL, operating in 10 cities, had delivered around 381 lakh sq. ft of projects as on September 30, 2021. Strong execution capabilities are reflected in quality construction and delivery track record of around 256 lakh sq. ft in the last seven years itself. The company currently has close to 489 lakh sq. ft (corresponding to GPL’s share in launched projects and excluding projects under the DMA model; as per CRISIL estimates) of ongoing residential projects and around 13 lakh sq. ft of commercial projects. Average saleability was around 83% (CRISIL estimates) in the ongoing residential projects, as on March 31, 2021. Strong brand and execution track record helps achieve healthy pre-sales. GPL is expected to sustain its strong business risk profile over the medium term, backed by stable saleability in ongoing projects and increasing share of owned projects and JV/JDA models with higher revenue/profit share, thereby improving overall profitability.
The promoter family and group companies hold 58.4% in GPL as on September 30, 2021. A key entity in the group, GPL would help the group monetise its land bank. GPL has signed a memorandum of understanding with various group entities to develop land parcel under the DMA model, which provides long-term business visibility. GPL derives significant synergies from its association with the Godrej brand, as is reflected in the strong saleability of its projects, all of which share the group’s brand name. Further, GPL has financial flexibility to refinance debt at low cost because it is a part of the Godrej group, as the same has been demonstrated in the past. CRISIL believes strong management and association with the Godrej group will remain a key rating driver.
Financial risk profile is characterised by healthy operating cash inflow; CRISIL expects the same at more than Rs 5,500 crore per annum over the medium term. Further, financial flexibility is supplemented by the group's demonstrated refinancing ability, access to unutilised bank limit (including unutilized CP limits) of about Rs 800 crore, unsold inventory in ongoing and completed projects of more than Rs 6,500 crore. GPL has 1,860 lakh sq. ft of saleable area across major micro markets in the country.
Leverage indicators have improved substantially with inflow from QIP of Rs 3750 crores in March 2021 and strong performance in FY21 leading to strong cash balances. Net gearing was negative 0.07 times in March 2021 and negligible as on Sep 30, 2021. Nevertheless, debt is expected to increase gradually to support increased outflow towards business development and construction expenses for new projects. As a result, net leverage may increase to around 1.0 time in the medium term to long term. Although leverage is expected to increase, with deployment of funds and the consequent asset creation, the debt-to-total assets ratio is likely to improve to below 30% over the medium term, from around 34% as on September 30, 2021 (CRISIL estimates).
Weaknesses:
The proportion of short-term debt to total borrowings has remained high for GPL, at 70-90% in recent years. While, it has helped in maintaining average cost of borrowings at below 7% (6.5% as on Sep 30, 2021), the average maturity profile of debt, however, remains short, thereby leading to large repayments in the near term, necessitating constant refinancing or roll-overs. Majority of short term facilities are in nature of CC/OD facilities which are revolving in nature. Nevertheless, the risk is mitigated by healthy cash surpluses of ~Rs 4,750 crore and un-utilised bank lines (including unutilized CP limits) of ~Rs 800 crore as on September 30, 2021, and strong saleability and expected collections in ongoing projects. GPL has financial flexibility to refinance debt at low cost as the same has been demonstrated in the past. The company had raised Rs 1000 crore in the form of longer tenure non-convertible debentures, which has moderately lowered the proportion of short-term debt in the overall debt mix. Further extension in maturity of debt in overall debt mix will help ease pressure to refinance or rollover short-term debt.
Cyclicality in the real estate sector could result in fluctuations in cash inflow and volatility in sales. In contrast, cash outflow, such as for debt servicing, is relatively fixed. Any decline in demand for ongoing projects could result in lower collections and impact cash flows. |
Liquidity: Strong Liquidity is supported by the strong saleability and collections in ongoing projects as well as expected for new launches. While collections are expected to be affected in the current fiscal, on an annual basis operating cash inflow may improve to over Rs 5,500 crore over the medium term as per CRISIL estimates. Majority of GPL’s debt is short term in nature, thereby resulting in large repayments in the near term. The group has adequate financial flexibility to manage these repayments and has demonstrated refinancing of debt at low cost in the past. GPL has unsold inventory of more than Rs 6,500 crore in ongoing and completed projects. GPL has 1,860 lakh sq. ft of saleable area across major micro markets in the country. Further, undrawn bank lines (including unutilized CP limits) of around ~Rs 800 crore and cash and equivalents of ~Rs 4,750 crore, as on September 30, 2021, support liquidity. |
Rating Sensitivity factors Downward Factors
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About the Company GPL is the real estate arm of the Godrej group and was incorporated as Sea Breeze Constructions and Investments Pvt. Ltd on February 8, 1985, by Mr Mohan Khubchand Thakur and Ms Desiree Mohan Thakur. In 1987, it became a part of the Godrej group and in 1989, it became a subsidiary of Godrej Industries Ltd (rated ‘CRISIL A1+’), which holds 47.3% of the company’s equity shares as on September 30, 2021. The promoters and promoter group collectively hold 58.4% stake in GPL. The company currently operates in 10 cities and focuses on residential, commercial, and township development.
In the six months ended September 30, 2021, on a consolidated basis, net profit was Rs 53 crore on operating income of Rs 215 crore, vis-à-vis net loss of Rs 12 crore and operating income of Rs 162 crore, respectively, in the corresponding period of the previous fiscal. |
Key Financial Indicators
CRISIL adjusted financials *2020 financials are not restated |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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Annexure - List of Entities Consolidated*
*Details as on September 30, 2021 Note: Partial implies moderate consolidation using equity method of consolidation |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Criteria Details
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