Godrej Properties shares up 1.93% as Nomura upgrades stock to 'Buy', cuts target to Rs 1,900

In its October 25 report, Nomura said the company should consistently deliver around 15% pre-sales growth, supported by its ability to drive sales across regions and price points, leading to continued market share gains. It also expects the company to consistently generate free cash flow (FCF) from FY28, moderating the pace of net debt growth. Godrej Properties trades at a premium of around 25% to net asset value (NAV), against Nomura's expectation of around 60%.

"This suggests the stock has priced in most of the negatives," the brokerage said. It lowered its sum-of-the-parts-based target price, factoring in a higher weighted average cost of capital of 13.5%, against 12.5% previously, to account for ongoing volatility. A key risk is a slowdown in India's real estate market due to a prolonged Middle East war. Q2 pre-sales beat estimates Godrej Properties reported pre-sales of Rs 80 billion in Q2FY27, ahead of Nomura's estimate of Rs 73 billion.

Sustenance sales of around Rs 50 billion contributed about 63% of pre-sales, while new launch sales stood at around Rs 30 billion. Collections rose 31% year on year to Rs 53 billion, while operating cash flow increased 33% to around Rs 15.8 billion. Revenue rose 161% year on year to Rs 19.4 billion, while EBITDA declined 9% to Rs 4.7 billion and profit after tax fell 62% to Rs 1.5 billion. Nomura attributed the EBITDA decline to accounting distortions at a project where profits had already been booked historically and settlement costs related to the Godrej Air project in Gurugram.

Nomura expects FY27 pre-sales target to be met Godrej Properties achieved 43% of its FY27 pre-sales guidance of Rs 390 billion in the first half, leaving Rs 223 billion to be generated in the second half. Nomura estimates scheduled launches worth around Rs 320 billion in H2FY27 could generate pre-sales of Rs 140-160 billion. Sustenance sales of Rs 80-100 billion could help the company meet its target.

FCF expected to turn positive in FY28 Collections and operating cash flow are expected to record around 15% CAGR over FY26-28, Nomura said. The company achieved around 40% of its FY27 collection guidance of Rs 240 billion in the first half, with collections up 25% year on year. Nomura expects collections and operating cash flow to reach Rs 300 billion and Rs 110 billion, respectively, in FY28, with around 20% year-on-year growth.

Given annual new land costs of Rs 85-90 billion, the brokerage expects Godrej Properties to turn FCF-positive in FY28, moderating net debt growth. Revenue recognition is also expected to contribute from FY28, supporting profit and equity recognition and helping the net debt-to-equity ratio peak out.