Rating Rationale
October 30, 2019 | Mumbai
Godrej Properties Limited
Rating Reaffirmed
 
Rating Action
Rs.1250 Crore Commercial Paper Programme CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL's rating on the commercial paper programme of Godrej Properties Limited (GPL; a part of the Godrej group) continues to reflect GPL's healthy business risk profile, backed by an established brand, strong execution track record and healthy collections; comfortable financial risk profile because of healthy cash flows from ongoing projects; and adequate financial flexibility owing to strong parentage of the Godrej group. These strengths are partially offset by exposure to refinancing risk and cyclicality inherent in the real estate sector.

Analytical Approach

For arriving at the rating, CRISIL has combined the business and financial risk profiles of GPL and its subsidiaries, joint ventures and associates (based on the consolidated financials of GPL). This is because these entities, collectively referred to as GPL, have common promoters and are in the same business.
 
The rating also factors in the benefits from proactive management and operational synergies derived from being a part of the Godrej group.

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:
* 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 4,620 crore and Rs 3,907 crore, respectively, resulting in gearing of 0.85 time, as on June 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 around Rs 3,000 crore as on June 30, 2019. Healthy operational cash inflow of Rs 4,382 crore in fiscal 2019 and Rs 885 crore in Q1 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 around Rs 3,000 crore as on June 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.
Liquidity Strong

Liquidity is supported by the strong saleability and collections in the ongoing projects as well as expected for new launches. CRISIL expects operating cash inflow to improve to over Rs 5,000 crore in fiscal 2020. Customer advances (to be received from sold inventory) to pending project cost ratio of 90% indicate good cash flow cushion. 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 6,500 crore in ongoing projects along with more than 1,000 lakh sq. ft of developable area across major micro markets in the country. Furthermore, undrawn bank lines of around Rs 500 crore and cash and equivalents of around Rs 3,000 crore, as on June 30, 2019, support liquidity.

Rating sensitivity factors:
Downward factors
* Sharp decline in operating cash flow, triggered by slackened saleability of existing and proposed projects or delays in project execution
* Weakening of financial risk profile due to higher-than-expected borrowing, leading to net gearing of more than 1.0 time

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 (rated 'CRISIL A1+'), which holds 48.8 of the company's equity shares as on June 30, 2019. 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.
 
In the three months ended June 30, 2019, on a consolidated basis, net profit was Rs 90 crore on operating income of Rs 636 crore, vis-a-vis Rs 34 crore and Rs 997 crore, respectively, in the corresponding period of the previous fiscal.

Key Financial Indicators
Financials as on / for the period ended March 31   2019 2018*
Revenue from operations Rs crore 2,833 2,171
Profit after tax (PAT) Rs crore 253 235
PAT margin % 8.9 10.8
Adjusted debt/adjusted net worth Times 1.44 1.67
Interest coverage Times 1.70 1.87
*Financials for fiscal 2018 are audited financials and have not been reinstated in line with fiscal 2019

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size
(Rs crore)		 Rating assigned
with outlook
NA Commercial Paper Programme NA NA 7-365 days 1250.00 CRISIL A1+
 
Annexure - List of entities consolidated*
Fully consolidated subsidiaries
Godrej Projects Development Ltd, Godrej Garden City Properties Pvt. Ltd, Godrej Hillside Properties Pvt. Ltd, Godrej Home Developers Pvt. Ltd, Godrej Prakriti Facilities Pvt. Ltd, Prakritiplaza Facilities Management Pvt.  Ltd, Godrej Highrises Properties Pvt. Ltd, Godrej Genesis Facilities Management Pvt. Ltd, Citystar InfraProjects Ltd, Godrej Residency Pvt. Ltd, Godrej Properties Worldwide Inc., USA, Godrej Landmark Redevelopers Pvt. Ltd, Godrej Highrises Realty LLP, Godrej Project Developers & Properties LLP, Godrej Skyview LLP, Godrej Green Properties LLP, Godrej Projects (Soma) LLP, Godrej Projects North LLP, Godrej Athenmark LLP, Godrej Vestamark LLP, Godrej City Facilities Management LLP, and Embellish Houses LLP.
Moderately consolidated joint venture and associate entities (GPL share of 55% or lower)
Godrej Realty Pvt. Ltd, Godrej Redevelopers (Mumbai) Pvt. Ltd, Wonder Space Properties Pvt. Ltd, Wonder City Buildcon Pvt. Ltd, Godrej Home Constructions Pvt. Ltd, Godrej Greenview Housing Pvt. Ltd, Wonder Projects Development Pvt. Ltd, Godrej Real View Developers Pvt. Ltd, Pearlite Real Properties Pvt. Ltd, Godrej Skyline Developers Pvt. Ltd, Godrej Green Homes Ltd, Ashank Macbricks Pvt. Ltd, Godrej Property Developers LLP,  Mosiac Landmarks LLP, Dream World Landmarks LLP, Oxford Realty LLP, Godrej SSPDL Green Acres LLP, Oasis Landmarks LLP, M S Ramaiah Ventures LLP, Caroa Properties LLP, Godrej Construction Projects LLP, Godrej Housing Projects LLP, Amitis Developers LLP, A R Landcraft LLP, Prakhhyat Dwellings LLP, Bavdhan Realty @ Pune 21 LLP, Godrej Highview LLP, Godrej Irismark LLP, Godrej Projects North Star LLP, Godrej Developers & Properties LLP, Roseberry Estate LLP, Suncity Infrastructures (Mumbai) LLP, Sai Srushti Onehub Projects LLP, Maan-Hinge Township Developers LLP (formerly known as Godrej Projects (Pune) LLP), Mahalunge Township Developers LLP (formerly known as Godrej Land Developers LLP), Manjari Housing Projects LLP (formerly known as Godrej Avamark LLP), and Godrej One Premises Management Pvt. Ltd
*List as of March 31, 2019 
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  1250.00  CRISIL A1+      24-10-18  CRISIL A1+  24-10-17  CRISIL A1+    --  -- 
All amounts are in Rs.Cr.
Links to related criteria
CRISILs Rating criteria for Real Estate Developers
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Group Support

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