The recent decline in the Godrej Properties stock has made it attractive for long-term investors. The stock lost around 46 per cent over the past year, while the BSE Realty Index declined 25 per cent in the same period. Concerns about the lack of new launches, sluggish sentiment in Mumbai and the rising debt weighed on the stock. But these risks have been reduced by the capital raised recently and the company stepping up new launches.

On-time project handover and a geographically diversified portfolio of residential and commercial projects in prime locations make Godrej Properties a good option in the real estate space. Low leverage (the amount of debt the company has in proportion to its equity capital) due to an asset-light model is also a plus, at a time when interest rates do not appear to decline sharply. At the current price of Rs 342, the stock trades at 18 times its estimated 2014-15 earnings, at the lower end of its historical trading band. The stock was recently de-rated on worries that Godrej, unlike other builders, may not make super-normal profits on its land bank. But the asset-light model has allowed Godrej Properties to use available funds for construction spread over 12 cities for a total area of 87.6 million square feet. Recently, the company completed and handed over the first phase of around 600 apartments in the Garden City project in Ahmedabad, launched in 2010. This is its largest residential project with an estimated saleable area of around 20 million sq ft. On-time delivery will likely help sales in the subsequent phases of the project.

Godrej Properties has access to the group companies’ sizeable captive land at Vikhroli in suburban Mumbai. It has been expanding its development rights portfolio and entered into agreements to develop 30 more acres at Panvel, near Mumbai, where a new international airport is planned.

The company’s rights issue in August, priced at Rs 325 per share, raised Rs 700 crore, and helped it reduce net debt to around Rs 1,200 crore from Rs 1,600 crore in June. Net debt to equity ratio fell to 0.57 times from 1.1 times in June. The lower leverage level will enable the company raise additional funds required for its projects. Also, the company’s cost of borrowing is low, at 11.4 per cent.

Godrej’s numbers over the next couple of quarters, however, may remain muted. Sales have slowed sharply at its Godrej BKC project in Mumbai, with saleable commercial area of 1.2 million sq ft. As the company’s future revenues and margin growth depend on this, sales need to be watched closely for improvements. Also, while the area sold in the September quarter was down 60 per cent year-on-year, revenue and profits increased 37 per cent and 31 per cent, respectively. Strong sales at Godrej One in Vikhroli and completed commercial project Godrej Waterside in Kolkata, aided the numbers.

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