Godrej properties hbj capital

Godrej Properties Ltd (GPL)
- Good Management chasing a Huge Opportunity

Content Index
• Our Research Desk’s views on the Stock Idea :- Slide #3
• Our Performance Update for 2013 :- Slide # 10
• Godrej Properties – Investment Snapshot :- Slide #15
• Godrej Properties – Business Overview :- Slide #17
• Investment Arguments :- Slide #39
• Godrej Properties – Financials:- Slide #53
• Concerns & Reasoning :- Slide #55
• Conclusion:- Slide #57
“ Specialists in discovering Multibagger stocks “

Dear Members,
Before we get into the details of this month’s Multibagger stock, I would like to wish all our Members – “A
Wonderful and Prosperous New Year”. We have used this year end opportunity to look back and evaluate our
performance in Stock picking and Portfolio Management. We strive consistently to improve our Stock picking
abilities and we believe that we are on the right path of having a strong strike rate in discovering good businesses
at reasonable prices. This can be seen from the performance of our Stock Ideas and our Portfolio as mentioned in
the Slides (10 – 13) of this report.
Let us come to Multibagger stock Idea of this month – Godrej Properties. For a long time, we have had - Ashiana
Housing as our only Investment Idea in the Real Estate sector. But over the last two months, we have
recommended NBCC and Godrej Properties as well. These recommendations are not based on a broad bullishness
on the sector (in fact we are extremely negative on the Traditional Real Estate developers and Land prices too),
but the reasons for these recommendations are more stock specific after taking into account various considerations
such as Business Model, Management, Growth Visibility, Valuations, Share-Holder friendliness etc.
Through this Investment write-up, I would be providing you with the broad reasoning on why we believe that
Godrej Properties is a potential Multibagger Idea and why we believe that Markets are wrong in valuing the
company at current prices. We have been tracking Godrej Properties for a long time, but the trigger for the current
recommendation primarily comes from the steep price correction (~50%) in the stock during the current fiscal
year. Let’s understand why the Stock may be a great long term investment at the current price.
1.) The Big Picture : (How do we see this Business in a decade from now ?)
Godrej Properties current revenue size of 1000 Cr is miniscule when compared with the market size for quality
Real estate development. Godrej group chairman – Adi Godrej believes, “GPL will be the group’s fastest growing
business and will be the biggest contributor to the group’s profits in a decade from now”. There is also an internal
growth target of around 40% CAGR over the next 10 years which should take the business to a size of >20X from
Our Research Desk’s views on the Stock Idea

the current size. While all of these targets may look Aspirational, we believe that the company is in fact getting well
positioned to grow at such high rates for a long period of time with the strong focus from the Godrej group on this
line of business. With a strong capital backup from the group, a huge market opportunity, healthy project
pipeline, ambitious Management, improving operational bandwidth, large land bank of Godrej group companies
and a mix of asset light business models – the company is well positioned to grow its operations multi-fold in the
coming decade as it aims to be amongst the Top-3 Real estate players in India.
2,) Strong Visibility for growth : (Will the company’s Business Model allow a rapid scale-up in Operations ?)
GPL follows a mix of development strategies such as JV model (Revenue Sharing, Profit Sharing, Area Sharing),
Development manager fee model (10% revenues with no capital investment), Re-Development projects and Co-
Investor platform projects for developing real estate projects across the country. GPL doesn’t follow a land bank
model and the company’s preference for tying up with local Land owners whose responsibility is to get all the
approvals in place for the project, allows the company to scale up across the country in a business where local
connections are extremely important. Its Pan-India brand value and Company’s model of outsourcing contracting
work also facilitates the rapid scale up without much technical glitches.
Capital is not a constraint for GPL as it uses relatively asset light business models. The promoter’s strong capital
backing and preference for tying up with external investors on Asset heavy projects (Private Equity Partnership’s –
Slide 20) allows the company to scale up its business multi-fold without any capital constraints.
Company’s rapid scale up in new project addition (Slide-27 & 28) and the huge opportunity of developing Godrej
group’s own land bank (Slide-37) offers strong growth visibility to the company for many more years. All of these
makes us believe that the company can certainly grow at a healthy CAGR of at least 30% for the next 10 years and
hence the more valid question should be to understand as to how profitable would this growth be, how much of
this growth would be un-diluted and how much wealth creation can accrue to the existing share holder. It is here
that we believe that the Markets are mis-reading the quality of incremental growth in the business.

3.) Improving Quality of Growth : (Will the company’s growth be Shareholder friendly ?)
We believe that the company’s current low returns Ratios doesn’t reflect the true nature of its business model
and a more normalized Return on Equity should be in the range of 15-20%. We believe that the current low ROE is
distorted by a few temporary factors such as, (also look at Slides – 41 to 44)
- Company’s loss making old Commercial Projects such as the project in Kolkata :
The extremely bad commercial real estate demand has made sure that – GPL’s commercial projects are making
losses and are delivering low returns on the locked-in capital, resulting in a distortion in the overall return ratios.
The ROE’s of projects excluding these Commercial projects are already at 15%. With the slow run down in these loss
making projects and a improved mix of Residential projects, there is enough indications of a improvement in ROE.
- Longer maturity profile for the company’s large Projects :
Some of the company’s important projects such as Vikhroli and Godrej Garden city are large projects with
timelines for these projects extending for the next 8-10 years. (Slide-45) In such large projects, the initial phases are
always used to establish a strong neighborhood and bulk of the project’s profits are back ended as the later phases
of development fetch strong margins. Hence the current Margins should improve over time and boost return ratios.
We also believe that the company’s consistent focus on Capital efficiency (Management doesn’t miss a chance
to speak about the focus on Return on capital in all their Concalls and Interviews) and an intent to deliver ROE’s
above 20% should serve as an indicator for an improvement going forward. We believe that the changing mix of
projects towards High ROE models such as Development Manager Fee model (Slide – 48) and Profit sharing model
would help the company to have larger incremental returns on capital. Our research indicates that the new projects
can generate EBIDTA of around 1500 Cr on little capital employed (Slide – 41) which shows the inherent strength of
GPL’s business model.
We also believe that the company is learning from some of its mistakes and there are indications of them
rectifying it, as any credible Management does. While there would still be glitches, our understanding is that the
company’s structural business model definitely allows for generating 20% ROE on a consistent basis. We believe
that the improving quality of growth would help investors achieve dis-proportionate returns.

4.) Seamless Web of deserved Trust : (How does the company stand out among other big Developers ?)
Real Estate sector has always been a murky sector where there is a lot of distrust among Market participants.
Godrej’s credible brand built over a 100 years has helped the company establish trust among various stake holders
of Real estate business in a extremely short period of time. Godrej is largest brand in the number of Indian people it
touches on a daily basis. GPL can successfully capitalize on this strong brand to attract more customers.
Company’s strong reputation also provides it with other advantages such as, Low cost of debt (11.2%) which is a
solid 100-300 bps cheaper than its competitors. It’s cost of Equity is the cheapest among all Real Estate players and
Investors are ready to invest in the company despite a weak Real Estate environment as seen from the huge
subscription for its Recent Rights Issue. Company has also been able to tap the Private Equity network efficiently to
raise capital. The company’s unique structure of a Co-Investment platform also is an indication of the company’s
ability to tap into different sources of capital to keep itself asset light. We believe that the low cost of Capital is a
result of the deserved trust which the Group commands.
The company’s takes its reputation as customer friendly very seriously and makes sure that it continues to build
on to that brand image. This has helped the company to generate strong customer interest for its projects even in a
dull environment (Slide – 38). This trust combined with Godrej group’s DNA in marketing helps the company out
beat its Peers and create strong value for its projects. This can be easily verified with the consistent increase in the
share of Development Manager Fee model where the company mainly does Project design, Planning, Marketing
and Sales of a project and does not commit any capital. We believe that the company’s ability to receive more than
10% of the projects revenue by just engaging in such 0 Capital investment activities demonstrates the real strength
of GPL’s Operations. As its strength improves, so does its negotiating power with its various partners.
We believe all these positives create a strong reinforcing loop which allows the company to tap into the best
Land bank partners, Private Equity investors, Cheap debt and a stronger customer connect. This would only
strengthen going forward as the company improves on its Project Quality and gets financially stronger. The
company’s strong base of Operational excellence can be seen from the numerous recognitions for its projects (Slide
– 46). We believe that GPL has all the ingredients to emerge as a large quality real estate developer which deserves
a premium for its projects.

5.) Un-demanding valuations for a High Growth stock : (How does the current stock price compare to the Intrinsic
value of the company ?)
The current valuations of 3300 Cr equity value (1200 Cr of Debt) for a company with an expected EBIDTA of 360
Cr in FY-15 doesn’t look very costly. The forward P/E multiple for this high growing business is around 13X on FY-15
numbers. The current stock price is less than 1.5X its Book value. Our estimates also show that the stock is
currently quoting at a slight discount to its Net Asset Value (NAV) as showed in Slide – 52. The stock has always
quoted at a high premium to its NAV since its IPO.
We believe that the stock has shed a lot of Froth which has surrounded it, since its IPO. The current valuations
doesn’t price in any irrational exuberance and rightly so. We believe that there is enough room for valuations to
expand as the company’s operations improve and Return ratios move upward. We believe a Investor with a time-
frame of around 10 years has a strong probability of making big bucks from this stock as there would be major
upsides from its Vikhroli Land (Slide – 36) and also improving business quality.
A Few Realistic concerns about Godrej Properties :
1.) Company has made mistakes in its Project selection & its execution strategy
GPL had done early monetization in a lot of its projects and where there has been cost escalation over the last 2
years, resulting in lower Margins. The company has now shifted more towards Profit Sharing (rather than Revenue
sharing) and covers for cost escalation during its initial sales. The company’s commercial projects and even its
recent large project like BKC doesn’t look attractive from a Return on Capital point of view.
While we can give a benefit of doubt based on its young execution history, the company should improve its
project selection and execution skills to consistently earn strong returns on its deployed capital. Company’s rapid
scale up in the number of projects it handles would also make it vulnerable to a lot more errors. Considering the
number of variables involved, we believe that the company would develop stronger expertise going ahead in
selecting a better project and would become more choosy.

2.) Aggressive Accounting practices & Optimistic guidance of the Management
GPL follows a relatively aggressive accounting policy to book revenues and also in booking profits during sale
of stakes in projects to its Private equity partners. We believe that the company has been optimistic in several
estimations which can be seen from the hit the company has taken on few projects where it has provided for a
assured IRR to PE investors. We believe mistakes like these are costly and creates doubts in the minds of Investors
about the guidance on its future profitability.
While we believe that these are important concerns, we are not very much worried about the company’s
consistent negative cash flow generation as we are sold on to the Management’s vision of Investing aggressively
during the current bad environment which would help it to reap rich rewards going ahead. The company’s balance
sheet strength and backing from its Parent should help it to tide over any balance sheet related stress.
We believe that any long term Investor should not miss this opportunity to buy into a high Growth business which
has a strong probability of being 20X of its current size in next 10 years, which is run by a credible Management,
which has a business model to capture those returns efficiently for a share holder and which is available at
reasonable valuations. We believe Markets would love this high structural growth business and we expect the
company to become a 20% ROE business over the next 3-5 years. All of this would ensure that the company’s stock
would gain not only from the company’s earnings growth but also from the potential re-rating which would help us
get strong Multibagger returns.
We would like Investors to take a dipping stake into the stock at the current low prices and add on to it
aggressively overtime as conviction levels improve on this Idea.
Regards,
[ Gokul Raj . P, Head – Investment Research ]

Our Performance Update for 2013

Performance of our Last 25 Stock Ideas
Strong Performance in an extremely tough environment for Mid-Cap and
Small-Cap stocks over the last 2 years.

Performance of our Last 25 Stock Ideas

Portfolio Performance
Our High Conviction Offline PMS service (TMP) consisting of 10-15 ideas at
any point has been able to consistently beat Industry benchmarks across all
conditions and deliver strong Absolute returns.

Godrej Properties – Investment Snapshot

Godrej Properties– Investment Snapshot
(as on December 31, 2013)
Recommendation :- BUY
Maximum Portfolio Allocation :- 4%
Investment Phases & Buying Strategy
1st Phase (Now) of Accumulation :- 80%
Current Accumulation Range :- 150-170 Rs
Core Investment Thesis :
The company follows a business model of real estate
development which we believe has the potential to create strong
value for shareholders. It has a very aggressive management and
also a strong growth visibility. We believe that the company can
definitely grow at over 30% CAGR over the next 10 years.
While the current Return ratios may not look attractive, we
believe this is a temporary phenomenon and expect the ROE to
inch upwards to about 18% over the next 3 years. Given all these
positives, the current valuation of 1.5X book value looks
attractive for a long term investor in a business which has a huge
growth potential and which is run by a good management.
Current Market Price – Rs. 164
Current Dividend Yield – 0.89%
Bloomberg / Reuters Code –GPL. IN/
GODR.BO
BSE / NSE Code – 533150/ GodrejProp
Market Cap (INR BN / USD Mn) – 33.46
/539.7 [1 USD – Rs. 62.0]
Total Equity Shares [Mn]– 156.10
Face Value – Rs. 5
52 Week High / Low – Rs. 310.1 / Rs.159
Promoter’s Holding – 74.96%
FII - 15.35%
DII - 1.42%
Other Holdings - 8.27%

Godrej Properties – Business Overview

Godrej Properties – Core Execution Model
.
• GPL uses the “joint development model” for developing properties, which entails entering into a development agreement
with the owner(s) of the land parcel(s) sought to be developed and developing the project jointly with the land owner.
projects.
• GPL is typically, entitled to share in the development property, or a share of the revenue or profits generated from the sale
of the developed property, or a combination of both entitlements .
• GPL in some projects offer and sell equity interests in project-specific companies to long-term investors. This business
model enables to hold fewer assets, be more capital efficient, achieve higher returns on investments in the projects and
undertake more projects without investing large amounts of capital towards the purchase of land.

Business Model
• GPL focuses primarily on residential projects. In residential project portfolio, GPL develops projects that
are focused on the higher end to mid-level range of the real estate market. Residential projects constituted
approximately 82.39% of our total Saleable Area.
• GPL entitled to share in the development property, or a share of the revenue or profits generated from the
sale of the developed property, or a combination of both. GPL’s joint development model allows them to be
more capital efficient and hold fewer assets.
• GPL in some projects offers and sells equity interests in project-specific companies to long-term investors.
This business model enables the company to rapidly scale up and use its capital efficiently. GPL is able to
limit its risk through project diversification while maintaining significant management control over these
projects. The company usually sells these equity interests for a premium leading to healthy profits.
• GPL also undertakes the development of projects as a development manager on a fee basis - where it
ideates, designs, markets and sells the project. There is no capital commitment and this model is highly ROE
accretive. The Value addition of the company is very much visible in this model.
• GPL has also created a residential development financing platform of 10,725 million under which a Dutch
co-operative representing a group of overseas investors and an Indian investor commit equity investments in
GPL’s residential projects. The platform intends to focus primarily on the development of FDI-compliant
residential projects in Mumbai, the National Capital Region, Bangalore, Chennai and Pune. The platform will
enable the company to capture outright land purchase transactions without deviating from GPL’s asset light
model. This will also add to the ease of capital access for GPL’s projects.

GPL – Among the only 3 Pan-India real estate developers
• GPL is a focused mid-income housing
player, with a pan India presence and a
differentiated business model.
• GPL is currently present in 12 cities i.e
Chandigarh, Chennai, Mangalore, NCR,
Ahmedabad, Mumbai, Nagpur, Kolkata,
Pune, Hyderabad ,Bangalore and Kochi.
• GPL will be able to expand to more
cities and towns across India which can
be easily penetrated given the brand
loyalty enjoyed by the company on a
Pan India basis.
• GPL is currently executing a total of 4
projects on a Pan India basis with
potential developable area of 88.7
million sq.ft.
• The projects are a mix of residential,
commercial and Townships which
provide long term visibility.

Consistent Access to Private Equity
• GPL has been using the PE route to de-risk itself from negative operating cash flow and the company has
adopted early monetization strategy as a part of its business model.
• GPL has been able to leverage its brand which has helped it to strike deals with PE players at a substantial
premium to its peers. While DLF had entered into deals at 3x its Book Value, GPL has been able to enter
deals at 5x its book value. During 2012 - 2 of the top 5 PE deals were done by GPL valued at USD 239 Mn.
The deal was done to foreign investors one of which happens to be with Government of Singapore
Investment corporation(GIC).
Top 5 PE Deals in 2012Year Project PE Partner % stake Deal Size
FY09
Godrej developers
private Ltd Redford India RE Babur 49%Rs.0.42 Bn
FY10
Godrej Realty Private
Ltd HDFC Ventures 49%NA
FY10
Godrej Waterside
Private Ltd. HDFC Ventures 49%NA
FY10 Happy Highrises Milestone RE Fund 49%Rs.0.70 Bn
FY10
Godrej Estate
Developers HDFC Asset Management 49%Rs.0.45 Bn
FY10 Godrej Sea View HDFC PMS 49%Rs.0.55 Bn
FY11
Godrej
Properties(Gurgaon
Project) Sun Apollo India Real Estate Fund 49%Rs.45 Cr
FY12 Godrej Properties APG Group of Investors NA140.8 Mn USD
FY12 Godrej Properties
Government of Singapore
Investment Corporation (GIC) NA98.2Mn USD
FY12 Godrej Landmark ASK Property Investment Advisors 49%20 Mn USD
FY12 Godrej Properties
APG(Dutch Pension service provider)
& Sparinvest property Funds NA141 Mn USD

Healthy Track Record &
Rapid Scale-up in Execution

Completed Residential Projects
• GPL has completed about 23 residential projects with an estimated developable area of about 6.08 Mn
Sq.Ft and saleable area of about 4.56 Million Sq.ft. GPL had completed all projects on schedule which shows
the consistent track record and project execution skills.
Project Name Location
Developable
Area(Mn Sq.ft)
Saleable
Area(Mn.Sq.ft)
Completion
Year
Godrej Park, Kalyan Mumbai 0.15 0.15 1996
Godrej Edenwoods – Phases I and II, Thane Mumbai 0.4 0.17 2000
Godrej Grenville Park, Ghatkopar Mumbai 0.06 0.03 2001
Godrej Hill, Kalyan Mumbai 1.07 1.07 2002
Godrej Sky Garden, Panvel Mumbai 0.31 0.31 2002
Godrej Plaza, Panvel Mumbai 0.06 0.06 2002
Godrej Indraprastha, Santacruz Mumbai 0.03 0.01 2003
Godrej Bayview, Worli Mumbai 0.04 0.01 2003
Godrej Sherwood, Shivaji Nagar, Wakdewadi Pune 0.09 0.02 2003
Godrej La Vista, Shivaji Park Mumbai 0.01 0.01 2006
Godrej Glenelg, Cuffe Parade Mumbai 0.05 0.01 2007
Godrej Waldorf, Oshiwara Mumbai 0.04 0.02 2007
Planet Godrej, Towers 1, 2, 3 and 4, Mahalaxmi Mumbai 0.66 0.2 2008-2009
Godrej Woodsman Estate, Towers 1, 2 and 7 Bengaluru Bengaluru 0.76 0.6 2009
Godrej Eden Woods, Phase III (Regency Park Tower B, Thane Mumbai 0.09 0.04 2009
Godrej GVD-I, Kalyan Mumbai 0.06 0.04 2009
Godrej GVD-II, Kalyan Mumbai 0.12 0.09 2010
Planet Godrej, Tower 5, Mahalaxmi Mumbai 0.17 0.05 2010
Godrej Riverside, Kalyan Mumbai 0.28 0.28 2010
Godrej Edenwoods – Phase III (Pine and Row House), Thane Mumbai 0.06 0.03 2010
Godrej Woodsman Estate – Towers 3, 4, 5, 6, Bengaluru Bengaluru 1.02 0.81 2010
Godrej Prakriti Kolkata 0.55 0.55 2013
TOTAL 6.08 4.56

Completed Commercial Projects
• GPL has completed about 10 commercial projects with developable area of 2.06 Mn Sq.Ft with saleable
area of about 0.83 Million Sq.Ft. GPL had completed 10 commercial projects which includes IT parks, Retail
spaces and Office complexes in Mumbai, Pune and Kolkata.
Developable
Area(Mn Sq.ft)
Saleable
Area(Mn.Sq.ft)
Completion
Year
M.G.S.M., Bandra Mumbai 0.03 0.01 1997
Godrej Millennium, Koregaon Road Pune 0.12 0.04 2000
Godrej Eternia B and C, Shivaji Nagar, Wakdewadi Pune 0.31 0.08 2003
Godrej Avanti, Shankarsheth Road Pune 0.02 0.01 2003
Godrej Castlemaine, Bund Garden Pune 0.29 0.16 2004
Godrej Coliseum, Phases I and II, Sion Mumbai 0.22 0.06 2007
Godrej Eternia – A, Shivaji Nagar, Wakdewadi Pune 0.26 0.07 2009
Godrej Waterside, Salt Lake City, Sector V - Phase 1 Kolkata 0.62 0.36 2010
Godrej Coliseum, Phase III, Sion Mumbai 0.17 0.04 2010
Godrej Eternia – C (10th Floor), Shivaji Nagar, Wakdewadi Pune 0.02 0 2010
Total 2.06 0.83

Current Residential Projects – Better Mix of High ROE projects
• GPL has about 17 ongoing residential projects with estimated developable area of about 20.93 Mn Sq.Ft
and saleable area of about 15.17 Million Sq.Ft. Out of the 17 projects about 3 are DM projects, 6 are
Revenue sharing projects, 4 are Area Based and the remaining 4 are profit sharing.
Est. developable
Area (Mn Sq.ft)
Est. Saleable
Area (Mn.Sq.ft) Economic Interest
Electronic City Bengaluru 1.36 1 DM Fee - 11% of Revenue
Godrej Crest Bengaluru 0.09 0.09 Revenue based – 59.0%
Godrej Platinum Bengaluru 0.79 0.6 GPL – 49.0%, other investor has preferential dividend rights
Godrej Gold County Bengaluru 0.29 0.29 Revenue based – 63.0%
Godrej Palm Grove Chennai 2.69 2.51 Area based – 70.0% (for 12.57 acres), 68.0% (for 4.82 acres)
Godrej Summit Gurgaon 2.59 2.04 Area based – 65.0%,
Godrej Frontier Gurgaon 1.35 0.82 Revenue based – 70.0%
Godrej Prakriti Kolkata 2.4 1.95 GPL – 51.0%
Godrej Platinum Kolkata 0.19 0.17 Revenue based – 45%
The Trees Mumbai 3.5 0.88 Profit based – 60.0%
Godrej Edenwoods Mumbai 0.03 0.03 Profit based – 50.0%
Godrej Platinum Mumbai 1.03 0.6 DM Fee - 10% of Revenue
Godrej Serenity Mumbai 0.21 0.18 Revenue based – 50.0%
Godrej Palms Mumbai 0.13 0.13 Area based – 47.5%
Godrej Anandam Nagpur 2.76 2.76
Upto 784790 Sq.ft DM Fee-400/Sq.Ft & remaining area
revenue based
Godrej Horizon Pune 0.69 0.54 Profit based – 51.0%
Godrej Alpine Mangalore 0.83 0.58 Area based for residential area – 71.5%

Ongoing Commercial Projects
• GPL is developing about 7 ongoing commercial projects with a developable area of 35.33 Mn Sq.Ft and a
saleable area of about 10.3 Million Sq.Ft. Out of the 7 projects - 2 are revenue based, 3 based on profit
sharing and 2 on area based.
Est. developable
Area(Mn Sq.ft)
Est. Saleable
Area(Mn.Sq.ft) Economic Interest
Godrej Garden
City Ahmedabad 23.72 2.4
Phase i to iv: area based – 73.6% phase v onwards:
revenue based – 67.6%
Godrej Eternia Chandigarh 0.69 0.51 revenue based – 44.5% to 47.0%
Godrej
Genesis Kolkata 1.59 1.34 area based – 62.0%
Godrej Prakriti Kolkata 2.4 0.42 GPL – 51.0%
Godrej
Waterside Kolkata 2.17 1.81 Area based – 61.0%
The Trees Mumbai 3.5 2.62 Profit based – 60.0%
Godrej BKC Mumbai 1.26 1.2 Profit based – 50.0%

Strong Pipeline of projects

Strong Residential Project pipeline
• GPL has about 17 forthcoming residential projects with estimated developable area of about 37.68 Mn
Sq.Ft and saleable area of about 29.2 Million Sq.Ft. Out of the 18 projects about 5 are DM projects, 8 are
Revenue sharing projects and the remaining 4 are profit sharing.
Est. developable
Area(Mn Sq.ft)
Est. Saleable
Tumkur Road,Sanjay
Khan Bengaluru 1.09 0.79 Revenue Based-78%
White Field Bengaluru 1.32 1 DM Fee-11%
Godrej &
Boyce,Moosapet Hyderabad 2.83 2.22 DM Fee-10% + Lumpsum payment-Rs.15 Cr
Godrej Oasis Hyderabad 7.19 4.87 100% of Profits
Kochi-I Project Kochi 2.29 2.24 Revenue Based-70%
Panvel Township Mumbai 3.5 3.5 Profit based –35% with upside promote to JV partner
Godrej Central Mumbai 1.39 0.68 Revenue Based-87.5%
Kalyan Township Mumbai 0.53 0.54 Revenue Based-95%
Godrej Sky Mumbai 0.6 0.3 DM Fee ` 500 million, with upside promote to GPL
Ghatkopar
Redevelopment Mumbai 0.41 0.19 100% share in the project specific company & revenues from the project
Currey Road Mumbai 0.58 0.12 DM Fee-10% of Revenue
Sahakar Nagar 2 Mumbai 1.18 0.75 Revenue Based-91%
Sundar Sangam Mumbai 0.16 0.1 Development agreement with society
Godrej & Boyce Lawkim,
Thane Mumbai 0.12 0.27 Profit based –32%
Godrej Okhla NCR 1.42 0.85 Revenue Based-52.5%
Bhugaon Township Pune 11.64 9.28
DM fee –11.09% + 162.00 / sq. ft., profit sharing if profits exceed certain
threshold
Undri 2 Pune 1.43 1.5 Profit based 40%

Upcoming Commercial Projects
• GPL is developing about 5 forthcoming commercial projects with developable area of 20.69 Mn Sq.Ft with
saleable area of about 3.59 Million Sq.Ft. Out of the 5 projects 3 are revenue based, 1 based on profit
sharing and 1based on DM model.
Est. developable
Area(Mn Sq.ft)
Est. Saleable
Godrej Oasis Hyderabad 7.19 0.44 100% of Profits
Godrej Alpine Mangalore 0.83 0.25 Revenue Based – 71.5% for Commercial Area
Kalyan
Township Mumbai 0.53 0.06 Revenue Based – 95.0%
Godrej
Genesis Pune 0.5 0.48 Revenue Based – 58.0%
Bhugaon
Township Pune 11.64 2.36
DM Fee-11.09% +162.00 / Sq. Ft., Profit Sharing if profits
exceed certain threshold

Strong Revenue Visibility in FY14
• GPL management has indicated that they are likely to do 8 large projects in FY14 which provides good
revenue visibility. GPL has plans to launch in these 8 areas an area of about 4.5-5 Mn.Sq.Ft with realizations
ranging from about Rs.3500 – 17000 per square feet.
• GPL management is hoping to attain revenues of Rs.24-25 Bn from these 8 projects in FY14.The
management plans seem to be reasonable and we believe that any turnaround in the Real estate markets
would help the company to fast track these plans.
Projects Location FY14 Launch Area(msf) Realization(INR/SF) GPL's Revenues(Rs.Bn)
Garden CityPhase5A & AFS Ahmedabad 0.6 2950-3450 1.3
Garden CityPhase5B Ahmedabad 0.5 3400 1.1
Platinum Kolkata 0.17 22000 1.7
Shahakar Nagar Mumbai 1.35 12000-14000 15.8
Palm Springs Mumbai 0.13 17000 1
Horizon Pune 0.54 5700 1.5
Panvel Mumbai 1 5500-6000 1.9
Oasis/Moosapet Hyderabad 0.5-1 3500 0.3-2
Total 4.5-5 24-25

Important Projects of Godrej Properties

Godrej Garden city - Ahmedabad
• Godrej Garden City is a township development
planned in Ahmedabad which is located in Jagatpur
village in the northwest region of Ahmedabad and is
located within the Ahmedabad Municipal
Corporation administrative limits.
• The project is expected to feature a clubhouse, full-
time security and a mix of apartments, villas and row
houses.
• The project has a developable area of 23.72 mn
Sq.Ft with a saleable area of 20.60 mn Sq.Ft. Godrej
Properties - economic interest in Phase I-IV is area
based at 73.6% and from Phase V onwards it is
revenue based at 67.6%.
• The current rate per square feet for the project is
around Rs.4400 per Sq.ft.
• Till June,2013 about 4.62 mn Sq.ft of the project
had been sold .
Garden City Project Details
Location Ahmedabad
Type of Development Residential Township
Developable Area(Mn.Sq.Ft) 3.5
Saleable Area(Mn Sq.Ft) 2.62
Project Starting Year 2010
Project Mode Area, Revenue Basis
Project Value(Rs.Cr) 1688
NAV Per Share 64

Godrej BKC Project - Mumbai
• GPL launched its landmark commercial project
Godrej BKC located at the centre of India’s most
prestigious commercial project Bandra -Kurla Project.
• The project is being developed on 2.5 acres of land
and is expected to have approximately 1.2 million sq.
ft. of office space. The project is located
approximately six and nine kilometers away from
Mumbai’s domestic and international airports,
respectively, and has access to both the western and
eastern express highways .
• The project has a developable area of 1.26 mn Sq.Ft
with a saleable area of 1.20 mn Sq.Ft. GPL has
entered into a profit sharing with 50% profits.
• The current rate per square feet for the project is
around Rs.25,800 per Sq.ft.
• Till June,2013 about 0.19 mn Sq.ft of the project
had been sold .
BKC Project Details
Location Mumbai
Type of Development Commercial
Project Starting Year Mar-13
Project Ending Year 2015
Project Mode Profit Sharing
Profit Sharing Basis 50%
Project Value(Rs.Cr) 1375
NAV Per Share 76

Godrej Frontier - Gurgaon
• GPL’s Godrej Frontier is a residential
development located in Gurgaon.
• The project is expected to feature three-
bedroom and four-bedroom homes in addition
to 19 penthouses. The project is expected to
include a health club, jogging track, swimming
pool, gymnasium, indoor games area and a
variety of landscaping features .
• The project has a developable area of 1.35 mn
Sq.Ft with a saleable area of 0.82 mn Sq.Ft. GPL
has entered into a profit sharing with 70%
profits.
• The current rate per square feet for the
project is around Rs.5800 per Sq.ft.
• Till June,2013 about 0.79 mn Sq.ft of the
project had been sold .
Frontier Project Details
Location Gurgaon
Type of Development Residential
Project Starting Year Oct-10
Project Ending Year NA
Project Mode Profit Sharing
Project Value(Rs.Cr) 47.6
NAV Per Share 26.8

The Trees - VIKHROLI Project
• The Trees is expected to have approximately
3.5 million sq. ft. of office space, residential
apartments, retail and hotel space.
• GPL is the Development Manager for the
project. GPL is required to provide expertise
and advice FSI/FAR regulations and project
feasibility, design and marketing plans.
• GPL has to bear all costs related to
management, sales and marketing and entitled
to receive 10% of the money received for the
sales of units plus all related statutory levies.
• GIL is responsible for arranging financing,
obtaining all necessary development approvals
and permissions, performing all construction
work and for bearing all costs related to
development.
• The current rate per square feet for the
project is around Rs.15950 per Sq.ft.
Vikhroli Project Details
Location Mumbai
Type of Development Residential,Commercial
Project Starting Year Oct-11
Project Ending Year NA
Project Mode Development Manager
Project Value(Rs.Cr) 117.8
NAV Per Share 23.5

Advantages of a Strong Parentage

Vikhroli Land Bank – A Cash Cow
• Godrej & Boyce the holding company of all
Godrej group companies, owns ~3,500acres in
Vikhroli (Mumbai). The management has
indicated that while a large chunk of this land
(~2,200acres) comes under mangrove area and
cannot be developed, it plans to commercially
develop the remaining ~1200 acres over the next
10-15 years.
• The Vikhroli project has a development potential
of about 25 residential projects which offer huge
upside potential over the next several years and
will be a cash cow.
• The estimated revenues for developing 36 acres
of land is about Rs.3000 Cr which translates to
about Rs.83.33 Cr per acre which signifies the
potential of the land bank.
• Further as these projects are developed over a
period of time there is scope for increase in
realizations as it has been proved that realizations
improve at the later phases of the projects

Agreement with Godrej group companies
• GPL has entered into limited liability partnership agreements with Godrej & Boyce and Godrej Industries
Limited for the joint development of certain real estate projects (the “LLP Agreements”). Under the terms of
the LLP Agreements, GPL and the counterparties are required to contribute certain amounts as fixed capital
contributions and are entitled to certain shares of the partnership profits.
• For the Thane project GPL is entitled to profit sharing of 32% while the rest will go to Godrej & Boyce
where there are 3 acres.
• For the Hyderabad project GPL is entitled to development manager fee of 10% while the rest will go to
Godrej & Boyce. For the Vikhroli project (discussed separately) GPL is entitled to profit sharing of 40% while
the rest will go to Godrej & Boyce.

Good Response to Projects
• GPL has had good response to its projects with most projects have pre-sales which is a testimony to their
brand and timely execution of projects. GPL in H1FY14 had 11,09,732 Sq.Ft of booked area which is valued
at Rs.944 Cr which provides revenue visibility for its projects.

Godrej Properties – Investment Rationale

Extremely ambitious Management

Highly Profitable Projects in Pipeline
• GPL management has indicated that they are likely to do 7 large projects in FY14 in profit sharing model
which is likely to generate revenues of Rs.28.5 Bn.
• GPL has plans to launch in these 87areas an area of about 7.1 Mn.Sq.Ft with realizations ranging from
about Rs.5500 – 14,000 per square feet.
• GPL management is expecting cost for these projects to be at Rs.13.1 Bn and is expecting EBIDTA of
Rs.15.4 Bn from these projects.
Projects Location
FY14 Launch
Area(msf) Realization(INR/SF)
GPL's
Revenues(Rs.Bn) Cost(Rs.Bn) EBIDTA(Rs.Bn)
Shahakar Nagar,Phase 1 & 2 Mumbai 1.35 12000 14.6 6.8 7.8
Malad Mumbai 0.1 12000 1.1 0.5 0.6
Undri Pune 1.5 4200 2.5 1.2 1.3
Ghatkopar Mumbai 0.2 14000 2.7 1.3 1.4
Byculla Mumbai 0.3 NA 0.5 0.1 0.4
Curry Road Mumbai 0.1 30000 0.4 0.1 0.3
Panvel Mumbai 3.5 5500 6.7 3.1 3.6
Total 7.1 28.5 13.1 15.4

Commercial Projects distorting real ROCE
• GPL has evolved plans to improve its ROCE which was dragged by commercial projects. GPL plans to focus
on residential segment for the next two to three years, fast monetization of its recent acquisitions and
better sales in commercial projects.
• GPL’s commercial developments in Kolkata and Chandigarh remain a concern. The management is
confident of the BKC project which has been a better performing project in Mumbai in a sluggish commercial
environment, despite severe concerns from the Analyst community on this project.
• GPL expects steady monetization of BKC commercial projects where it plans to complete the construction
in 3 years with annual sales of 0.25 Mn.Sq.Ft from FY-14
• GPL plans to bring in PE funds to offload partial stake if the markets turns favorable failing which they
would funding can be done through internal accruals.

Rising share of Residential Properties
• GPL had in FY13, a revenue share of 83% from residential segment while the commercial segment
contribution was around 17%.
• GPL had lower margins and profitability on account of commercial projects which were hit by a slowdown
in the economy.
• Going forward GPL is likely to see increased contribution from Residential projects which will improve its
margins and profitability. GPL had in FY13 sold about 4.56 Mn.Sq.Ft of residential area and 0.83 Mn.Sq.Ft of
commercial area and its forthcoming projects are likely to sell 29.2 Mn Sq.Ft of residential area and 3.59 Mn
Sq.Ft of commercial area.

Turnaround in Operating Cash Flows
• During FY-13, GPL has generated positive operating cash flow after reporting negative operating cash
flows since 2007.
• The positive cash flows was generated due to better collections from rising pre-sales and minimal capital
commitment in most of the recent acquisitions.
• GPL has used the operating cash flow towards interest payment of Rs.2.2 bn resulting in a net debt
reduction of Rs.0.6 bn to Rs.15 bn.
• GPL is expected to generate positive operating cash flows going forward on account of contribution of new
projects which provide better revenue and profitability.

Strong Back-Ended Cash Flow in its long gestation projects

Makings of a Quality Real Estate developer

Improving Mix of Projects

Development Manager Fee projects – A Huge Positive
• GPL is executing several projects as development manager for which it is generally entitled to about 10-
11% of revenues a s development manager fee.
• Going forward GPL will benefit from more number of development projects on account of the groups land
bank for which they are the preferred developer. GPL is currently developing 4.36 Mn Sq.Ft of its ongoing
commercial projects while forthcoming residential and commercial projects are likely to have about 12.92
and 2.36 Mn. Sq.Ft respectively.
Development Manager Projects
On Going Residential
Est. Saleable
Electronic City Bengaluru 1DM Fee - 11% of Revenue
Godrej Platinum Mumbai 0.6DM Fee - 10% of Revenue
Godrej Anandam Nagpur 2.76Upto 784790 Sq.ft DM Fee-400/Sq.Ft & remaining area revenue based
Forthcoming Residential
Projects
Est. Saleable
White Field Bengaluru 1DM Fee-11%
Godrej & Boyce,Moosapet Hyderabad 2.22DM Fee-10% + Lumpsum payment-Rs.15 Cr
Godrej Sky Mumbai 0.3DM Fee ` 500 million, with upside promote to GPL
Currey Road Mumbai 0.12DM Fee-10% of Revenue
Bhugaon Township Pune 9.28
DM fee –11.09% + 162.00 / sq. ft., profit sharing if profits exceed certain
threshold
Forthcoming Commercial
Projects
Est. Saleable
Bhugaon Township Pune 2.36DM Fee-11.09% +162.00 / Sq. Ft., Profit Sharing if profits exceed certain threshold

Area Sharing based projects
• GPL is executing about 4 ongoing residential area based projects with saleable area of 5.26 Million Sq.Ft.
Godrej Palm grove is the largest of the four ongoing residential projects which contributes about 47.76%
while Godrej summit contributes about 38.79%.
•GPL is currently developing 1.81 Mn Sq.Ft of its ongoing commercial projects on the basis of area. The
proportion of residential to commercial mix of projects done on the basis of area is about 75:25%.
Area Based Projects
Est.developable
Area(Mn Sq.ft)
Est. Saleable
On Going Residential
Projects
Godrej Palm Grove Chennai 2.69 2.51
Area based – 70.0% (for 12.57 acres),
68.0% (for 4.82 acres)
Godrej Summit Gurgaon 2.59 2.04Area based – 65.0%,
Godrej Palms Mumbai 0.13 0.13Area based – 47.5%
Godrej Alpine Mangalore 0.83 0.58Area based for residential area – 71.5%
On Going Commercial
Projects
Godrej Waterside Kolkata 2.17 1.81Area based – 61.0%

Redevelopment Projects
• GPL has entered into redevelopment projects in
a major way as they offer tremendous scope in
Mumbai where land is a scarce commodity and
redevelopment eases pressures of housing in the
city and creates a Win-Win situation.
• Redevelopment in Mumbai offers a tremendous
opportunity with at least 16,000 buildings to be
redeveloped in the next decade.
• GPL plans to capitalize on the tremendous
opportunity available in the Mumbai
redevelopment market and has incorporated a
wholly-owned subsidiary, Godrej Projects
Development Private Limited.
• GPL’s redevelopment projects having seen good
traction as the company was able to add two
projects in this space during the past 5 quarters.
• GPL ‘s redevelopment projects also suits its asset
light business model as that will allow them to
enter into JV deals for such projects.

Profit Based projects – better cost structure
• GPL is executing about 3 ongoing residential profit based projects with saleable area of 4.22 Million Sq.Ft.
The Trees is the largest project with saleable area of 3.5 Million Sq.Ft. The segment share is about 25%.
• GPL is executing 3 forthcoming profit based projects with saleable area of 5.05 Million Sq.Ft. The share of
forthcoming projects is about 31% in this segment.
• GPL is executing a large commercial project in Hyderabad with saleable area of 7.19 Million Sq.Ft. GPL has a
economic interest of 100% profits on this project which has the highest share of about 44%.
Profit Based Projects
Est.developable
Area(Mn Sq.ft)
Est. Saleable
On Going Residential Projects
The Trees Mumbai 3.5 0.88Profit based – 60.0%
Godrej Edenwoods Mumbai 0.03 0.03Profit based – 50.0%
Godrej Horizon Pune 0.69 0.54Profit based – 51.0%
On Going Commercial Projects
Godrej BKC Mumbai 1.26 1.2Profit based – 50.0%
Forthcoming Residential Projects
Panvel Township Mumbai 3.5 3.5
Profit based –35% with upside promote to JV
partner
Godrej & Boyce Lawkim, Thane Mumbai 0.12 0.27Profit based –32%
Undri 2 Pune 1.43 1.5Profit based 40%
Forthcoming Commercial
Projects
Godrej Oasis Hyderabad 7.19 0.44100% of Profits

Current Net Asset Value (NAV) of Godrej Properties
• GPL derives most of its revenues from residential segment which has been valued at Rs.15,400 Mn which
gives a NAV of Rs 86.69 per share.
• GPL ‘s office projects are valued at Rs.11,500 Mn which gives a NAV of Rs.65 per share. GPL’s Vikroli land
has been valued at Rs.8300 Mn which gives a NAV of Rs.46.72 per share. The fair value per share for GPL is
estimated at rs.216 providing an upside potential of 28.65%.
• The current stock price is quoting at a 20% discount to its Net Asset Value. The stock has a history of
quoting at a significant premium to its NAV.
Project Value(Rs.Mn) NAV
Residential 15,400 86.69
Office 11,550 65.00
Retail 2,500 14.07
Hospitality 335 1.89
Value from Group MOUs 2,600 14.64
Total GAV 34,335 193.29
Net Debt -9,336 -52.56
NAV 24,999 140.73
Vikhroli Land 8,300 46.72
Net Asset Value 33,299 187.45
NAV Discount 4,995 28.12
Fair Value 38,294 206

Financials

Earnings Projection – P&L Account
• GPL’s revenues are expected to grow
by 25% and 20% in FY14 & FY15 driven
by improved demand scenario and
execution. We have projected very
conservative numbers.
• GPL has EBITDA margins in the range
20-25%. We estimate EBITDA margins of
about 25% in FY14 and FY15.
• GPL is likely to report PAT of Rs.226.79
Cr in FY14 and Rs.243.01 Cr in FY15 with
an EPS of Rs.12.77 and Rs.13.68 in FY14
and FY15 respectively.
• GPL interest cost in FY 13 was at Rs.3
Cr and is expected to be about Rs.3.89
Cr and Rs.4.67 Cr in FY14 and FY15
respectively.
• We expect the company to grow
without adding any further stress to its
Balance sheet with improving cash
flows from its future projects.
Specialists in discovering Multibagger stocks “
Particulars FY12 FY13 FY14E FY15E
Net Sales 770.05 1037.12 1296.4 1555.68
% Chg 70.55 34.68 25.00 20.00
Total Expenditure 612.07 751.33 964.26 1197.87
% Chg 22.75 28.34 24.23
EBITDA 157.98 285.79 332.14 357.81
EBITDA Margins(%) 20.52 27.56 25.62 23.00
Interest 5.31 3 3.89 4.67
Depreciation 3.88 4.39 5.19 6.22
PBT 198.5 288.85 333.51 357.37
PAT 128.79 197.29 226.79 243.01
EPS 16.5 25.28 12.77 13.68

Concerns & Reasoning
1.) Lack of ownership rights and clean title :
Certain parties granting development rights may not have acquired ownership rights or clear title in
respect of land that the company has categorized as part of Land Reserves. Parties granting development
rights may also have litigation, bankruptcy or such other proceedings pending with respect to such land. Any
legal issues pertaining to ownership and title will impact the company.
2.) Suspension or Abandoning of Projects :
Disputes may arise between the company and development partners which may cause delay in
completion, suspension or complete abandonment of a project, which may adversely affect the business,
financial condition and results of operations .
3.) Delay in project completion will impact the company :
The company in certain developments commit to complete the developments within specified time
frames, failing which, we are required to pay liquidated damages to our customers at specified rates for the
delay. Further the company provides warranties for a period of up to three years from the completion of
construction for construction defects and may be held liable for such defects that occur, if any. Any such acts
will adversely impact the company ‘s financials.
4.) Rising Input Cost to impact the company :
GPL has procured building materials such as steel, cement, flooring products, hardware, bitumen, sand
and aggregates, doors and windows, bathroom fixtures and other interior fittings from third party suppliers
.Any steep increase in the prices of these materials may impact the margins and profitability of the company.

Price Chart
• GPL has corrected sharply during the past year from
Rs.310 to Rs.159.
• The stock is quoting at a steep discount of 35% to its IPO
price of 2010.
• The selling pressure seems to have intensified after the
recent Rights Issue in the stock.
Share Holding
%
Sep Jun Mar Dec
2013 2013 2013 2012
Promoters 74.96 74.96 74.99 74.99
FII 15.35 15.38 14.81 13.22
DII 1.42 1.44 2.23 2.31
Others 8.27 8.22 7.97 9.48

Conclusion
We have always loved businesses where a credible Management chases a huge opportunity and where
there is a shareholder friendly business model to capture the business growth into Value creation for
shareholders. We believe that Godrej Properties perfectly fits this bill with the incremental improvements in
its business operations and the huge ambition of becoming India’s Top real estate developer.
Godrej Properties like NBCC and Ashiana Housing, generates profits from increased volume of real
estate development and not from increasing realizations of their Land bank. While the execution of Godrej
Properties is nowhere comparable to the strong track record of Ashiana housing, the ambition levels and the
huge scale up in GPL’s operations will definitely compensate for the lack of operational excellence. We look
at Ashiana housing as a company which can generate strong return ratios with a moderate growth and
Godrej Properties as a company which can grow at a stupendous rate with moderate return ratios. We
believe that both companies provide strong returns potential for long term investors.
We believe that Investors are underestimating the structural return potential of GPL’s business model
and also the improvement in its quality of projects going forward. With a right intent, a strong team and a
good business model, it’s only a matter of time before GPL’s starts generating consistently high returns on its
capital employed. The company’s advantages over its Peers and strong Parentage would certainly help the
company to achieve its ambition of becoming a large profitable Real estate player.
When we are able to able to BUY such a high potential business at a discount to its NAV and at a Price
to Book Value of 1.5X, we certainly believe that the stock makes for a good Investment opportunity. We
certainly believe that the stock has a large probability of becoming a Large cap over the next decade and
can provide Multi-Fold returns to existing investors.

THANK YOU

Godrej properties hbj capital

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