Godrej Properties, a significant player within the Godrej group and recognized as one of India’s most notable real estate companies, has recently reported its worst quarterly performance since the September 2010 quarter relative to the same period last year. The firm has recorded a modest growth of 8% in consolidated net sales, while operating profit has plunged by 17.4%. Several factors have contributed to this downturn, including subdued sales volumes, weakened operating margins, and a slowdown in project execution. Notably, more than 60% of the quarterly income was generated from projects linked to group companies, while earnings from other projects were minimal. Some commercial projects sold below their break-even cost have further exacerbated the decline in profit margins.
Moreover, escalating costs and an increased share of minority interest have also adversely affected the company's average margins. Sales volume growth has not been particularly stellar in the Garden City project situated in Ahmedabad, which accounted for only 16% of total income, a stark decrease from 49% in the prior December quarter. Following this financial downturn, the company's net debt excluding funds from the Initial Public Offering (IPP) has risen to 1554 crore, leading to a debt-equity ratio of 0.85, an increase from the 0.55 ratio recorded at the end of the last fiscal year.
Despite these challenges, the management team remains optimistic regarding margin improvement and plans to enhance execution while also aiming to launch 17 new residential projects in the fiscal year 2013. Maintaining the stability of the balance sheet will be a key focus area. For the moment, however, it appears that the stock could face additional corrections, as market perceptions adjust the previously inflated prices of the realty stock, which were based on the company’s asset-light model, strong performance history, and the positive reputation of its promoters.