| Godrej Properties Limited | ||
| Rating Reaffirmed | ||
| Rating Action | ||
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| 1 crore = 10 million | ||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has reaffirmed its 'CRISIL A1+' rating on the commercial paper programme of Godrej Properties Limited (GPL; a part of the Godrej group). |
| Analytical Approach |
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CRISIL has combined the business and financial risk profiles of GPL and its subsidiaries, 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 |
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Strengths * Established brand name and strong market position GPL, operating in 11 cities, had delivered around 375 lakh sq. ft of projects as on September 30, 2020. Strong execution capabilities are reflected in quality construction and delivery track record of around 250 lakh sq. ft in the last six years itself. The company currently has close to 365 lakh sq. ft (corresponding to GPL's share in launched projects and excluding projects under the DMA model) of ongoing residential projects and around 44 lakh sq. ft of commercial projects. Average saleability was around 72% in the ongoing residential projects, as on March 31, 2020. 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/JDA models with higher revenue/profit share, thereby improving overall profitability. * Strong parentage enhances financial flexibility The promoter family and group companies hold around 65% in GPL. A key entity in the group, GPL would help the group monetise its land bank. GPL has signed a memorandum of understanding with various group entities 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. Further, 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. CRISIL 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 moderate operating cash inflow; CRISIL expects the same at more than Rs 4,500 crore over the medium term. Further, financial flexibility is supplemented by the group's demonstrated refinancing ability, access to unutilised bank limit of about Rs 830 crore, unsold inventory in ongoing and completed projects of around Rs 8,000 crore and 1,940 lakh sq. ft of developable area across major micro markets in the country. With the change in GPL's strategy and its focus on business development, it is expected that incremental debt of Rs 2,000-2,500 crore may be drawn. As a result, net leverage may increase to over 1.0 time in the near-to-medium term; albeit availability of equity proceeds together with operational cash flows will help maintain net gearing at 1.0-1.5 times, in-line with the management stance. Although leverage is expected to increase, with deployment of funds and the consequent asset creation, the debt-to-total assets ratio is likely to improve to below 40% over the medium term, from around 44% as on September 30, 2020 (CRISIL estimates). 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 at below 8%, the average maturity profile of debt, however, remains short, thereby leading to large repayments in the near term, necessitating constant refinancing or roll-overs. Nevertheless, the risk is mitigated by healthy cash surpluses of Rs 1,549 crore and un-utilised bank lines of Rs 830 crore as on September 30, 2020, and strong saleability and expected collections in ongoing projects. Also, the company has recently raised Rs 1000 crore in the form of longer tenure non-convertible debentures, which is expected to moderately lower the proportion of short-term debt in the overall debt mix. Further extension in maturity of debt in 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 |
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Liquidity is supported by the strong saleability and collections in ongoing projects as well as expected for new launches. While collections are expected to be affected in the current fiscal, operating cash inflow may improve to over Rs 4,500 crore over the medium term as per CRISIL estimates. 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 these repayments. GPL has unsold inventory of around Rs 8,000 crore in ongoing and completed projects along with 1,940 lakh sq. ft of developable area across major micro markets in the country. Further, undrawn bank lines of around Rs 830 crore and cash and equivalents of Rs 1,549 crore, as on September 30, 2020, support liquidity. |
| About the Company |
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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 (rated 'CRISIL A1+'), which holds 49.3% of the company's equity shares as on September 30, 2020. The promoters and promoter group collectively hold 64.5% stake in GPL. The company currently operates in 11 cities and focuses on residential, commercial, and township development. |
| Key Financial Indicators* | ||||||||||||||||||||||||
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels. |
| Annexure - Details of Instrument(s) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - List of Entities Consolidated* | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Note: 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. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| For further information contact: | ||||||
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