Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A1+’ rating on the commercial paper (CP) programme of Godrej Properties Ltd (GPL).

 

The rating continues to reflect the strong market position GPL, backed by an established brand, strong execution record and healthy saleability and robust financial flexibility on account of being a part of the Godrej group. The rating is also supported by GPL’s adequate 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 another year of strong sales of 20 million square feet (mn sq ft) valued at Rs 22,527 crore in fiscal 2024, on the back of strong demand for its projects and series of launches rolled out during the fiscal.  The momentum is expected to continue with further new launches over the medium term, supported by buoyancy in end-user demand. Developable area for company’s projects was around 223 mn sq. ft as on May 3, 2024. Construction activity has progressed at a healthy pace as well and should support future sales and collections. Consequently, collections remained strong at Rs 11,436 crore in fiscal 2024.

 

Gross gearing increased to 1.02 time as on March 31, 2024, from 0.69 time as on March 31, 2023) – thus translating into debt-to-total assets ratio of 33.3% as on March 31, 2024 (as against 30.9% as on March 31, 2023) (CRISIL Ratings estimates). Net gearing was 0.56 time (CRISIL Ratings adjusted) as on March 31, 2024. The cash flow position remains healthy, while debt-to-total assets ratio is expected to improve below 30% over the medium term (CRISIL Ratings estimates). While debt is likely to increase gradually to support expected outflow towards business development and construction expenses for new projects, debt-to-total assets ratio would improve given consequent asset creation. Liquidity is also sufficient, with cash and equivalents of ~Rs 4,700 crore and undrawn bank lines (including unutilised CP limits) of ~Rs 2,800 crore as on March 31, 2024. The ability of GPL to maintain operational performance and keep debt and leverage metrics at adequate levels will be key monitorable.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of GPL and its subsidiaries, joint ventures (JVs) and associates (based on the consolidated financials of GPL group). This is because these entities, collectively referred to as GPL group, 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.

Key Rating Drivers & Detailed Description

Strengths:

• Established brand name and strong market position: GPL, operating in 11 cities, had delivered around 47 mn sq. ft of projects during the seven fiscals through fiscal 2024, supported by strong execution capability reflected in its quality construction and delivery track record. The company had more than 74 mn sq. ft (corresponding to GPL’s share in launched projects and excluding projects under the developer management agreement (DMA) model; as per CRISIL Ratings estimates) of ongoing residential projects as on March 31, 2024. Average saleability was around 86% (CRISIL Ratings estimates) in the ongoing residential projects, as on March 31, 2024. Strong brand and execution track record continues to help GPL to achieve healthy pre-sales at the project launch itself. GPL is expected to sustain its strong business risk profile over the medium term, backed by robust saleability in ongoing projects and increasing share of owned projects and JV/joint development agreement (JDA) models with higher revenue/profit share, thereby enhancing overall profitability.

 

• Strong parentage enhances financial flexibility: The promoter family and group companies held 58.48% in GPL as on March 31, 2024. GPL derives significant synergies from its association with the Godrej brand, as is reflected in the robust saleability of its projects, all of which share the group’s brand name. The company has signed a memorandum of understanding (MoU) with various group entities to develop land parcels under the DMA model, which provides additional long-term business visibility. Furthermore, GPL has the financial flexibility to refinance debt at low cost being a part of the Godrej group, which has been demonstrated in the past. CRISIL Ratings believes strong management and association with the Godrej group will remain key rating drivers.

 

• Adequate financial risk profile: Financial risk profile is characterised by high visibility of operating cash inflow over the medium term, given the total saleable area potential of 223 mn sq ft across major micro markets in the country. Leverage indicators had improved around March 2021, with the inflow from the qualified institutional placement of Rs 3,750 crore, which has been deployed towards acquisition of projects through outright land acquisition as well as through JV/JD agreements over the past three fiscals. Net gearing increased to 0.56 time as on March 31, 2024, from 0.35 time as on March 31, 2023. Net debt is expected to increase further to support increased outflow towards business development and construction expenses for new projects, resulting in higher net gearing of up to 1 time. Although leverage is likely to increase, with deployment of funds and the subsequent asset creation, the debt-to-total assets ratio is likely to improve to below 30% over the medium term, from around 33.3% as on March 31, 2024 (CRISIL Ratings estimates).

 

Furthermore, financial flexibility is supplemented by the company's demonstrated refinancing ability, access to unutilised bank limit (including unutilised CP limit) of about Rs 2,800 crore and unsold inventory in ongoing projects (excluding projects under the DMA model) of around Rs 14,000 crore as on March 31, 2024. 

 

Weaknesses:

• Exposure to refinancing risk: The proportion of short-term debt to total borrowing remained high for GPL, at 70-90% in recent years. While, it has helped in maintaining average cost of borrowings below 8% (7.82% as on March 31, 2024), the average maturity profile of debt remains short, thereby leading to large repayments in the near term, necessitating constant refinancing or roll-overs. Majority of the short-term facilities are in form of CP and cash credit/overdraft facilities which are revolving in nature.  Nevertheless, the risk is mitigated by healthy cash surplus of ~Rs 4,700 crore and un-utilised bank lines (including unutilised CP limits) of ~Rs 2,800 crore as on March 31, 2024, and strong saleability and expected collections from ongoing projects. GPL has the financial flexibility to refinance debt at low cost which has been demonstrated in the past.  The company raised Rs 2,660 crore in the form of longer tenure non-convertible debentures (NCDs) during fiscal 2024, which moderately lowered the proportion of short-term debt in the overall debt mix. Further extension in maturity of debt in the overall debt mix will help ease pressure to refinance or rollover short-term debt.

 

• Exposure to inherent cyclicality: 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. CRISIL Ratings believes operating cash inflow may improve to over Rs 15,000 crore over the medium term. 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 the debt repayment and has demonstrated refinancing of debt at low cost in the past. GPL has 223 mn sq. ft of saleable area across major micro markets in the country. Furthermore, undrawn bank lines (including unutilised CP limit) of around ~Rs 2,800 crore and cash and equivalent of ~Rs 4,700 crore, as on March 31, 2024, support liquidity.

 

Environment, Social and Governance (ESG) profile

CRISIL Ratings believes GPL’s ESG profile supports its already strong credit risk profile.

 

The real estate sector has a significant impact on the environment owing to high emissions, waste generation and impact on land and biodiversity. The impact on social factors consists of labour-intensive operations and safety issues on account of construction related activities.

 

GPL has an ongoing focus on strengthening the various aspects of its ESG profile.

 

Key ESG highlights:

• GPL has maintained carbon neutrality by offsetting scope 1 and 2 greenhouse gas emissions. Further, its scope 1 and 2 emissions and energy consumption intensity per crore of revenue has reduced by around 7% and around 35% respectively in fiscal 2023.
• GPL plans to achieve green building certifications for all the projects in its portfolio. As of fiscal 2023, around 95% of the company’s portfolio is certified as green building by external agencies.
• It reported nil lost time injury frequency rate for employees and a low 0.06 time for workers. Also, it reported nil workforce fatalities in fiscal 2023.
• As of fiscal 2023, employee gender diversity stood at around 20%, which was well above peers. Further, it has set quantitative long-term goals on further enhancing diversity.
• Its governance profile is characterised by 57% of its board comprising of independent directors, 29% woman board directors, presence of a board level ESG committee, split in chairman and CEO positions and extensive financial disclosures.

 

There is growing importance of ESG among investors and lenders. GPL’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given its high foreign portfolio investor shareholding (more than 25%) and access to capital markets.

Rating Sensitivity factors

Downward factors:

• Weakening of the financial risk profile due to higher-than-expected borrowing, leading to continued increase in debt to total assets ratio and net gearing exceeding 1.5 times
• Sharp decline in operating cash flow, triggered by slackened saleability of existing and proposed projects or substantial delays in project execution

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 (‘CRISIL AA/Stable/CRISIL A1+’), which holds 47.34% of the company’s equity shares as on March 31, 2024. The promoters and promoter group collectively held 58.48% stake in GPL. The company currently operates in 11 cities and focuses on residential, commercial, and township development.

Key Financial Indicators (CRISIL Ratings - adjusted financials)

Financials as on / for the period ended March 31	Unit	2024*	2023
Operating income	Rs crore	4,334	2,280
Profit after tax (PAT)	Rs crore	747	621
PAT margin	%	17.2	27.2
Adjusted debt/adjusted net-worth	Times	1.02	0.69
Interest coverage	Times	7.87	2.53

*based on abridged financials reported by the company

Any other information: Not Applicable

Annexure – List of entities consolidated

Entities consolidated*	Extent of consolidation**	Rationale for consolidation
Godrej Projects Development Ltd	Full	Wholly owned subsidiary
Godrej Garden City Properties Pvt Ltd	Full	Wholly owned subsidiary
Godrej Hillside Properties Pvt Ltd	Full	Wholly owned subsidiary
Godrej Home Developers Pvt Ltd	Full	Wholly owned subsidiary
Godrej Prakriti Facilities Pvt Ltd	Full	Wholly owned subsidiary
Prakritiplaza Facilities Management Pvt  Ltd	Full	Wholly owned subsidiary
Godrej Highrises Properties Pvt Ltd	Full	Wholly owned subsidiary
Godrej Genesis Facilities Management Pvt Ltd	Full	Wholly owned subsidiary
Citystar InfraProjects Ltd	Full	Wholly owned subsidiary
Godrej Highrises Realty LLP	Full	Wholly owned subsidiary
Godrej Skyview LLP	Full	Wholly owned subsidiary
Godrej Green Properties LLP	Full	Wholly owned subsidiary
Godrej Projects (Soma) LLP	Full	Wholly owned subsidiary
Godrej Athenmark LLP	Full	Wholly owned subsidiary
Godrej Properties Worldwide Inc., USA (dissolved w.e.f. February 1, 2024)	Full	Wholly owned subsidiary
Godrej Project Developers & Properties LLP	Full	Wholly owned subsidiary
Godrej City Facilities Management LLP	Full	Wholly owned subsidiary
Godrej Florentine LLP	Full	Wholly owned subsidiary
Godrej Olympia LLP	Full	Wholly owned subsidiary
Ashank Realty Management LLP	Full	Wholly owned subsidiary
Godrej Precast Construction Pvt Ltd	Full	Wholly owned subsidiary
Godrej Green Woods Pvt Ltd	Full	Wholly owned subsidiary
Godrej Realty Pvt Ltd	Full	Wholly owned subsidiary
Godrej Buildwell Projects LLP (formerly known as Godrej Construction Projects LLP)	Full	Wholly owned subsidiary
Godrej Living Pvt Ltd	Full	Wholly owned subsidiary
Ashank Land and Building Pvt Ltd	Full	Wholly owned subsidiary
Ashank Facility Management LLP	Full	Wholly owned subsidiary
Godrej Vestamark LLP	Full	Wholly owned subsidiary (w.e.f. 23 June 2023)
Godrej Real Estate Distribution Company Pvt Ltd	Full	Wholly owned subsidiary (w.e.f. 20 July 2023)
Wonder City Buildcon Ltd	Full	Wholly owned subsidiary (w.e.f. 26 May 2023)
Godrej Home Constructions Ltd	Full	Wholly owned subsidiary (w.e.f. 2 June 2023)
Maan-Hinje Township Developers LLP	Full	Subsidiary
Oasis Landmarks LLP	Full	Subsidiary
Godrej Residency Pvt Ltd	Full	Subsidiary
Godrej Reserve LLP	Full	Subsidiary
Godrej Skyline Developers Pvt Ltd	Full	Subsidiary (w.e.f. 28 September 2023)
Dream World Landmarks LLP	Full	Subsidiary (w.e.f. 30 September 2023)
Caroa Properties LLP	Full	Subsidiary (w.e.f. 28 March 2024)
Godrej Property Developers LLP	Full	Subsidiary (w.e.f. 7 February 2024 to 29 February 2024)
Oxford Realty LLP	Partial	Joint venture
Embellish Houses LLP	Partial	Joint venture
M S Ramaiah Ventures LLP	Partial	Joint venture
Godrej Macbricks Pvt Ltd	Partial	Joint venture
Suncity Infrastructure (Mumbai) LLP	Partial	Joint venture
Yerwada Developers Pvt Ltd	Partial	Joint venture
Godrej Highview LLP	Partial	Joint venture
Godrej Greenview Housing Pvt Ltd	Partial	Joint venture
Godrej Housing Projects LLP	Partial	Joint venture
Godrej Amitis Developers LLP	Partial	Joint venture
Wonder Projects Development Pvt Ltd	Partial	Joint venture
AR Landcraft LLP	Partial	Joint venture
Godrej Real View Developers Pvt Ltd	Partial	Joint venture
Pearlite Real Properties Pvt Ltd	Partial	Joint venture
Godrej Odyssey LLP	Partial	Joint venture
Manjari Housing Projects LLP	Partial	Joint venture
Godrej SSPDL Green Acres LLP	Partial	Joint venture
Prakhhyat Dwellings LLP	Partial	Joint venture
Roseberry Estate LLP	Partial	Joint venture
Godrej Projects North Star LLP	Partial	Joint venture
Godrej Developers & Properties LLP	Partial	Joint venture
Godrej Irismark LLP	Partial	Joint venture
Godrej Green Homes Pvt Ltd	Partial	Joint venture
Manyata Industrial Parks LLP	Partial	Joint venture
Mahalunge Township Developers LLP	Partial	Joint venture
Munjal Hospitality Pvt Ltd	Partial	Joint venture
Mosaic Landmarks LLP	Partial	Joint venture
Godrej Redevelopers (Mumbai) Pvt Ltd	Partial	Joint venture
Universal Metro Properties LLP	Partial	Joint venture
Madhuvan Enterprises Pvt Ltd	Partial	Joint venture
Vivrut Developers Pvt Ltd	Partial	Joint venture
Vagishwari Land Developers Pvt Ltd	Partial	Joint venture
Godrej Projects North LLP	Partial	Joint venture
Crystalline Home Developers Pvt Ltd	Partial	Joint venture (w.e.f. 5 September 2023, upto 1 December 2023)
Godrej One Premises Management Pvt Ltd	Partial	Associate

*Details as on March 31, 2024

**Partial implies moderate consolidation using equity method of consolidation