ICRA has reaffirmed the short term rating outstanding on the Rs 6 billion (enhanced from Rs 4 billion) Commercial Paper programme of Godrej Properties at 'A1+'. ICRA also has a long term rating of 'A+' with stable outlook and a short term rating of 'A1+' outstanding on the Rs 17 billion bank lines of the company.
The reaffirmation of the rating factors in the favorable liquidity profile of the company supported by the recent equity infusion through rights issues (GPL raised Rs 7 billion in September 2013) as well as the low near term debt repayment obligations. The rights issues also brought around an improvement in the company’s capital structure, despite the increase in the debt levels in the current fiscal, as reflected by improvement in net gearing from 1.1 times as on Mar. 31, 2013 to 0.7 times as on Dec. 31, 2013.
The rating continues to be supported by the strong parentage of Godrej Industries (GIL) and low commitment in terms of land payments due to its business model of entering into Joint Development Agreements (JDA) with the land owners. The rating also takes into account the healthy project line up with increasing focus on development management fee arrangements and shift towards profit sharing model from revenue sharing model which is expected to lead to higher profitability levels going forward.
The pre-sales for the residential portfolio have been subdued in the past fiscal, as compared to the historical levels, constrained by the lack of new launches. However, ICRA has taken note of the healthy response for its commercial project at Bandra Kurla Complex (BKC) which was launched in Q4 FY 2013, with about 23% of the area tied up as of December 2013, which has helped support the total sales tie-up of the company to an extent. (GPL booked 1.62 mn sq.ft. of area in 9M FY 2014 as against 3.44 mn sq.ft. in 9M FY 2013). Nevertheless, considering the current sluggish demand for commercial real estate space as well as typical back ended nature of sales for commercial projects, the market risks for the project remains high.
Shares of the company gained Rs 1.25, or 0.59%, to trade at Rs 214.50. The total volume of shares traded was 58,474 at the BSE (1.18 p.m., Monday).
