2022 was a tough year for real estate stocks. Godrej Properties- a prominent name among the Nifty Realty Index corrected by more than 30% in 2022. Problems like high debt and high valuations resulted in the stock price going down significantly. In this article, we will find out if Godrej Properties is worth considering investing in for the future.
Stock Price Performance:
- 2022 has been a tough year for real estate companies as the sector is being affected by the increasing home loan rates.
- Godrej Properties is one of the worst-performing components of the Nifty Realty Index in the last year as the stock is down by 35%+ in last year whereas the Nifty Realty index is down ~13% and Nifty 50 is up 3% in the same period.
Reasons for correction in stock price:
- Expensive Valuations: One of the reasons why the stock corrected is that it had risen quite rapidly but the company’s financial performance didn’t catch up to that mark, which made the valuations look expensive.
- Increasing Leverage: The net debt of the company is increasing rapidly. As of the end of Q2 FY23, the company had a net debt of Rs. 1,365 crores as against a net debt of just Rs. 16 crores at the end of Q2 FY22.
As of the end of Q2 FY23, the company’s net debt-to-equity ratio stood at 0.16x. Although this key metric is currently low and cash flows are comfortable, with new projects being added, the company’s debt levels could also increase further. However, with rising interest rates, investors would wish that the company tries to limit its debt levels.
- In FY23, Godrej Properties have already added 9 new projects so far this fiscal with an estimated revenue potential of Rs 19,500 crore.
- With the 9th project added in the 4th week of December, the company has already surpassed its full-year guidance of adding projects with a booking value potential of Rs 15,000 crore.
- Mr. Pirojsha Godrej, Executive Chairman of the company said “Given strong further visibility, we will end 2022-23 fiscal much ahead of the target”.
- Purchasing land in attractive locations would help the company to improve its operations in the long term.
What Should Investors Do:
An individual should understand that in real estate, there is an execution risk. Also, real estate is a kind of cyclical sector and hence an individual should invest in these stocks based on their risk profile. The Real Estate sector utmost requires good fundamentals and strong governance and an individual should carefully assess these factors along with others before making any investment decisions.
Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.