The Growth Engine
Godrej Properties is key to driving the group’s fortunes in the coming years
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The sudden demonetisation of currency notes that impacted many real estate players didn’t perturb Godrej Properties. Profits at the property development arm of the Godrej Group nearly zoomed four-fold in the third quarter ending 31 December 2017 to Rs 77.25 crore over last year.
Much of this new found growth momentum is because of the various new projects launched by Godrej Properties in recent times, and also because some of the old projects have started to see the tide turning with sales rising. In fact, one of the projects, Godrej One at BKC in Mumbai, where Godrej Properties had substantial working capital locked up, has recently been sold for Rs 1,400 crore and the profits are being used to pare down debt.
It’s a momentum that looks poised to continue. The business of Godrej Properties is also bolstered by its differentiated business model that seeks to only develop properties rather than acquiring stakes in land parcels. Adi Godrej, the chairman of the group, says the group has a lot of land that can be developed and that Godrej Properties will only partner with land owners to develop properties.
And it’s this differentiated strategy that helps the business clock higher profitability compared to some of the real estate players who have acquired substantial amounts of land.
To bolster its sprawling property in Vikhroli,Mumbai, Godrej Properties has launched a flagship project Godrej The Trees, which is already in its second phase of construction. This is a 35-acre project that once completed will house premium office space, residential towers, high-street retail and five-star hospitality. In fact, just recently, the group announced that it has tied up with Taj Hotels to build the luxury hotel project in The Trees.
Among the first commercial buildings in The Trees project, is the building Godrej One. The Godrej Group shares its headquarters in the building, where other floors are leased out to various tenants.
It’s ‘The Trees’ project that has contributed significantly to the profitability of the company. The project has contributed nearly 61 per cent to the topline growth. Additionally, this project has an order book of around Rs 1,000 crore, which can significantly improve the margins and even raise future profitability.
Godrej Properties also noted that the firm registered total bookings worth Rs 693 crore in the December quarter, which is quite substantial. Before the year 2017 is over, the third phase of Godrej The Trees project will be launched, which includes around 3.5 lakh sq ft of residential space.
Its strategy to tie up with property owners has started to pay off now. It recently signed up for another residential project, tying up with a Pune-based developer for a residential project in Hinjewadi’s IT Park, on the outskirts of Pune. This is the twelfth such project of the group, and one of many to come as the developer continues newer partnerships for building projects.
It has not always been a hunky-dory ride for the property arm. The firm felt the pressure of slackening sales in the last three years; its profits fell from Rs 127 crore in 2015 to Rs 30.4 crore in 2016. But now with its sales slowly gathering steam, the worst seems to be behind it.
In the last year or so, Godrej Properties has proved its ability to launch new projects and receive substantial interest in the pre-booking phases. Its recent launches in Gurgaon and Mumbai have received over 75 per cent bookings. It sold over 6 lakh sq ft of villas worth over Rs 300 crore on the first day of launch of Godrej Golf Links in Greater Noida and over 300 apartments within two months of launch at Godrej Greens in Pune (the projects were launched in November 2016). The only hitch is whether the company can continue to maintain the healthy pace of construction and bolster its bottom line.
Luckily for it, new regulations like the RERA (Real Estate Regulation and Development Act) are expected to benefit strong and organised players like Godrej Properties. Adi Godrej notes that while RERA is welcome and is good, you have to be careful because delays are not because of the builder but because sometimes permissions get delayed or rules are changed. “If it is applied to people who take consumers money and do not complete projects, it makes sense,” says Godrej.
RERA is also likely to reduce the number of property players, so only the stronger developers will survive. And for companies like Godrej Properties, raising resources is not expected to be a constraint. Godrej Properties also holds 20 per cent stake in joint ventures that will invest in properties for development by the company.
It’s a strategy that can help to keep a steady stream of developable land available to the company in the long run. However, in its quest for accelerating growth 10 times, it remains to be seen whether the new pace of growth helps in recovering the losses in the last four years. That said, if Godrej Properties continues its good run of liquidating existing commercial assets, and continues to see an increase in project, perhaps the targets can be achieved.