Rating Rationale

Strengths:
* Healthy business risk profile
GPL operates in 11 cities, with a track record of delivering around 310 lakh square feet (sq. ft) of projects as on June 30, 2019. Strong execution capabilities are reflected in quality construction and delivery track record of around 200 lakh sq. ft in the last five years. The company currently has close to 350 lakh sq. ft (corresponding to GPL's share and excluding projects under the development management arrangement [DMA] model) of ongoing residential projects and around 20 lakh sq. ft of commercial projects.

GPL follows the asset-light model where most of the projects are under joint development agreements (JDA) or joint ventures, wherein GPL enters into a revenue/profit sharing arrangement with land owners to develop the land. The company also has a healthy portfolio of projects under the development management arrangement (DMA) model wherein GPL manages projects for which it gets fees. Average saleability was around 72% in ongoing residential projects, as on March 31, 2019. Strong branding and execution track record helps achieve healthy pre-sales. GPL is expected to sustain its healthy business risk profile over the medium term, backed by sustained saleability in ongoing projects and its continued focus on the JDA and DMA models.

* Comfortable financial risk profile
GPL's net worth and gross debt were Rs 4,652 crore and Rs 4,123 crore, respectively, resulting in gearing of 0.89 time, as on September 30, 2019. The company raised equity through qualified institutional placement of Rs 2,100 crore during the first quarter (Q1) of fiscal 2020. This has helped increase cash and cash equivalent to Rs 3,034 crore as on September 30, 2019. Healthy operational cash inflow of Rs 4,382 crore in fiscal 2019 and Rs 1,744 crore in the first half of fiscal 2020, also supported the financial risk profile. The equity proceeds together with healthy operational cash flow, will help maintain leverage levels at under 1.5 times over the medium term, in line with the management stance.

* Strong parentage enhancing financial flexibility
The Godrej group and its promoter family hold around 65% in GPL. GPL is a key entity in the group, which would help the group monetise its land bank. GPL has signed a memorandum of understanding with various entities of the group to develop land parcel 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 financial flexibility to refinance debt at low cost because it is a part of the Godrej group, as has been demonstrated in the past.

Weaknesses:
* Exposure to refinancing risk
The proportion of short-term debt to total debt has remained high for GPL. While it has helped in maintaining average cost of borrowings at around 8%, the average maturity profile of the debt, however, remains short, thereby leading to large repayments in the near term, exposing the company to refinancing risk. Nevertheless, the risk is mitigated by liquidity in the form of cash and cash equivalents of Rs 3,034 crore as on September 30, 2019 and strong saleability and collections in ongoing projects.

* 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 in ongoing projects could result in lower collections and expose the group to refinancing risk.