What Godrej Properties just did !

Godrej Properties has “first refusal rights ” for the 4,000 acres that Godrej Industries has in the mangroves of Vikhroli. Of this, Godrej Industries and Godrej Properties had an LLP for 35 acres, in which 28,00,000 sqft was to be built. The built up area was to be shared in 60:40, 40% being Godrej Industries’ share. Godrej Properties swapped 1.674 cr shares for 11.2lakh square feet.At a value of about 385-400 cr the company bought 11.2lakh square feet, i.e at about 3,571 rs a sq ft by issuing new shares in the company. Currently the apartment rates in Vikhroli trade at about 12,000+.At about 3,000 rupees to cost of construction, the company has paid just 25% of the realisable sale value or 50% of the construction and land cost.

Master stroke ?

The company’s policy of not buying land really attracted me and it had also differentiated the company. Now, they not only in effect bought land, but also bought it by giving away equity.

With this deal the promoters have to immediately sell 42 lakh shares as their promoters shareholding has increased to 76.85 from 74.9.

The total number of shares in the company, is now 21.6cr up from 19.9cr.

When you look at the current share price to the sale price of the property, the deal looks awesome. However, when one assumes that the company will grow 10x from here this equity dilution sucks. However, it is great for the promoters !

Further updates from the consolidated numbers :

1. Loans up by 1,138 cr and inventories up by 1,001 cr.
2. Average borrowing cost is now 11.8%
3. Adjusted EBITA, now down to 26.4% from 35.1% last year.  This means that for every 11.8 rs of interest that the company paid last year it had to sell 41 rs compared to just 31.8 rs last year, i,e it has to sell 28% more just to be able to pay off the same interest.    🙁
4. The outstanding shares for godrej properties has been as follows
   1. 2009 – 60.42 cr
   2. 2010 – 69.85 cr
   3. 2011 – 69.85 cr
   4. 2012 – 78.04 cr
   5. 2013 – 78.05 cr
   6. 2014 – 99.12 cr
   7. 2014 – 108.02 cr , the outstanding share capita has almost doubled in the last 6 years. The reserves have gone up 8x , but i guess much of it can be attributed to the securities premium collected on the equity dilution.

Godrej properties used to give we a warm feeling every time i thought about it as an owner. While the prospects of the company have not changed and the developable area has increased and the new Real Estate Bill is also largely in favour of companies like Godrej Properties, this habit of continuos incessant equity dilution make me wonder if Godrej Property is merely painting with numbers.

From a believer, I feel myself becoming a skeptic.

I really hope this is the last rung of their equity dilution as the promoters have now regained their 75% stake in the company.