Godrej Properties, an emerging force in the real estate sector, has done well in the quarter ended December 2010, with sales rising 40% to Rs 48 crore, over the previous quarter, and by 39% over the same period last year.
Its profits, however, have fallen, with net profit halving to Rs 18 crore, compared to the previous quarter, but is flat when compared to the same period, a year ago.
The company’s cost of sales (net) has jumped from Rs1 crore in the September 2010 quarter to Rs 37 crore in the December quarter, which has accounted for the flattened profit curve.
The Kolkata property launch in November ’10 is one of the reasons for lower margins, due to relatively low demand for commercial properties. Other new launches have been residential, in Gurgaon, Chennai and Kolkata in the quarter ended December 2010. The Gurgaon venture was a special one, as it marked Godrej’s entry into the National Capital region.
Also, real estate companies book expenses as they occur, but can book revenues in their profit and loss account, only when their projects reach certain stages of completion. Thus, expenses are front-ended, while revenues tend to bunch up towards completion.
Note that the company sells equity in its projects, to private equity investors, during the course of completion of a project. This amount is recorded as other income, after the company pays capital gains on the same. Thus, there is an element of other income in its financials, which is related to its operations.
During the quarter, other income for the company is quite high, at Rs 20 crore, up by 73% over the same period last year, and led to total income increasing to Rs 68 crore.
The company’s return on capital employed has remained stable at 6%. Its net profit margin has dropped to 26% in the December 2010 quarter, compared to 37% in the year ago period, with total income used as the denominator. This margin was higher compared to the previous quarter’s figure at 40%. This margin is comparable to that of Godrej’s competitors who have margins in the range of 20-40%.
On a day when the Sensex fell by 322 points or by 1.7%, the company’s share price rose by 4% to close at Rs 610.