| Godrej Properties Limited | ||
| Rating reaffirmed at 'CRISIL A1+'; Rated amount enhanced for Commercial Paper | ||
| Rating Action | ||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||
| 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 on account of being part 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 15.21 million square feet (mn sq ft) valued at Rs 12,232 crore in fiscal 2023. The momentum is exp/ected to continue with new launches over the medium term. The total saleable area as on May 2, 2023 was around 194 mn sq. ft. Construction activity has progressed at a healthy pace as well and this should support future sales and collections. Consequently, collections remained strong at Rs 8,991 crore in fiscal 2023.
GPL raised Rs 3,750 crore through qualified institutional placement (QIP) in March 2021 to expand business and support future growth. Leverage indicators had improved substantially with inflow from the QIP and strong performance in fiscal 2022 leading to strong cash balances. Gross gearing increased to 0.69 time as on March 31, 2023, from 0.59 time as on March 31, 2022 – thus translating into debt-to-total assets ratio of 33.7% as on March 31, 2023 (down from 35.5% as on March 31, 2022) (CRISIL Ratings estimates). Net gearing was 0.39 times as on March 31, 2023. The cash flow position remains healthy, while debt-to-total assets ratio is expected to be modest at below 30% over the medium term (CRISIL Ratings estimates). While debt is likely to increase gradually to support increased outflow towards business development and construction expenses for new projects, debt-to-total assets ratio will improve given consequent asset creation. Liquidity is also sufficient, with cash and equivalents of ~Rs 3,100 crore and undrawn bank lines (including unutilised CP limits) of ~Rs 900 crore as on March 31, 2023. The ability of GPL to continue operational performance 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, joint ventures (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. |
Key Rating Drivers & Detailed Description Strengths: Established brand name and strong market position: GPL, operating in 10 cities, had delivered around 320 lakh sq. ft of projects during the five years ended on March 31, 2023. Strong execution capability is reflected in quality construction and delivery track record of around 500 lakh sq. ft in the last ten years. The company had close to 495 lakh 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, 2022. Average saleability was around 84% (CRISIL Ratings estimates) in the ongoing residential projects, as on March 31, 2023. 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/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 hold 58.48% in GPL as on March 31, 2023. A key entity in the group, GPL would help the group monetise its land bank. The company has signed a memorandum of understanding (MoU) with various group entities to develop land parcels 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. Furthermore, GPL has the financial flexibility to refinance debt at low cost because it is 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 a key rating driver.
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 1944 lakh sq ft across major micro markets in the country. Leverage indicators had improved around March 2021, with the inflow from the QIP 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 two fiscals. Net gearing was negligible as on March 31, 2022 and increased to 0.39 time as on March 31, 2023. 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 to long term. 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 33.7% as on March 31, 2023 (CRISIL Ratings estimates)
Furthermore, financial flexibility is supplemented by the company's demonstrated refinancing ability, access to unutilised bank limit (including unutilised CP limits) of about Rs 900 crore, unsold inventory in ongoing projects (excluding projects under the DMA model) of more than Rs 11,000 crore as on March 31, 2023.
Weaknesses: Exposure to refinancing risk: 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 below 7% (6.65% as on March 31, 2023), 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 3,100 crore and un-utilised bank lines (including unutilised CP limits) of ~Rs 900 crore as on March 31, 2023, and strong saleability and expected collections in ongoing projects. GPL has the financial flexibility to refinance debt at low cost which has been demonstrated in the past. The company had raised Rs 1,000 crore in the form of longer tenure non-convertible debentures (NCDs), which has 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 10,000 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 1,944 lakh sq ft of saleable area across major micro markets in the country. Furthermore, undrawn bank lines (including unutilised CP limits) of around ~Rs 900 crore and cash and equivalent of ~Rs 3,100 crore, as on March 31, 2023, 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:
a. GPL has maintained third party-assured water positive status in fiscal 2022. Additionally, it has maintained Carbon Neutral status by offsetting GHG emissions (Scope I and Scope II) arising from its operations in fiscal 2022. b. GPL has committed to SBTi targets and is setting up reduction targets with roadmap c. GPL has plans to maintain Water Neutrality, Carbon Neutrality for Scope 1 and 2, extend reporting to Scope 3 GHG emissions and minimize waste to landfill
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, 2023. The promoters and promoter group collectively held 58.48% stake in GPL. The company currently operates in 10 cities and focuses on residential, commercial, and township development. |
Key Financial Indicators (CRISIL Ratings - adjusted financials)
*based on abridged financials reported by the company |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
*Details as on March 31, 2023 **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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