Ladies and gentlemen, good day and welcome to Godrej Properties Q1 FY 2027 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star and then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Kshitij Jain from Investor Relations. Thank you, and over to you, sir.
Thank you, Raghav. Good afternoon, everyone, and thank you for joining us on Godrej Properties Q1 FY 2027 results conference call. We have with us Mr. Pirojsha Godrej, Executive Chairperson, Mr. Gaurav Pandey, Managing Director and CEO, and Mr. Rajendra Khetawat, CFO of the company. Before we begin this call, I would like to point out that some statements made in today's call may be forward-looking in nature. The forward-looking statements are based on expectations and may involve risk. The outcome may differ materially from those suggested by such statements, and a disclaimer to this effect has been included in the results presentation. I would now like to invite Mr. Pirojsha Godrej to make his opening remarks. Over to you, Pirojsha.
Good afternoon, everyone. Thank you for joining us for Godrej Properties' first quarter FY 2027 conference call. I'll begin by discussing the highlights of the quarter, and we then look forward to taking your questions and suggestions. GPL achieved a booking value of INR 8,651 crore, a year-on-year growth of 22% from the sale of 3,738 homes with a total area of 6.2 million square feet. This is the sixth consecutive quarter in which GPL has exceeded INR 7,000 crore of booking value.
Booking value in the first quarter was driven by strong demand in several new project launches, including Godrej Vanantara, which had INR 3,237 crore of sales, Godrej Samaris in Gurugram, which had INR 1,248 crore of sales, and Godrej Brooklyn Avenue in Hyderabad, which was launched right at the end of June and sold INR 300 odd crore in June and has sold a similar amount since then.
Incidentally, Godrej Vanantara is the third project in Bengaluru to achieve a booking value of more than INR 3,000 crore in the last three years. Bookings contributions were led by Bengaluru at 44%, followed by MMR at 21%, NCR at 18%, and Pune and Hyderabad at 11% and 5% respectively. GPL has thereby achieved 22% of its annual guidance for booking value for the financial year. Collections in the first quarter stood at INR 4,348 crore, year-on-year growth of 18%. Operating cash flow in the first quarter stood at INR 399 crore, a decline of 58%. Direct construction spend increased by 41% year-on-year in Q1. While OCF in Q1 was very weak, we expect our operating cash flow to meaningfully increase in the rest of the year and grow to approximately INR 9,000 crore for the full year.
GPL added three new projects with an estimated saleable area of approximately 8 million square feet and expected booking value of INR 9,500 crore. With this, we achieved 48% of annual guidance for business development in the first quarter. For the first quarter, the total income declined by 16% to INR 1,337 crore. EBITDA declined by 40% to INR 545 crore, and net profit declined by 42% to INR 350 crore. This is because we had only one project completion in Q1, and that was of a DM structure project. We remain on track for 13.5 million square feet of deliveries in the full year and for achieving 20% ROE in FY 2028. With a robust launch pipeline and strong balance sheet, we're confident of delivering another strong year. On that note, I conclude my remarks. Thank you all for joining us on the call.
We'd now be happy to discuss any questions, comments, or suggestions you may have.
Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and then one on their touchtone phone. If you wish to remove yourself from the question queue, you may press star and then two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Your first question comes from Puneet with HSBC. Please go ahead.
Yeah. Thank you so much, congrats on good sales bookings here. My first question is with respect to your view on the various markets that you operate in. Which markets do you feel more excited about? Where are you a bit worried, and how are you thinking about business development in those areas?
Thanks for the question. One of the interesting things we've seen from a data perspective at an aggregate level, right? The first six months H1 performance for overall Indian residential real estate has been very strong. I think the only laggard in the game, from a quarter one perspective, pan-India, would be give or take Gurgaon, which also I think quarter two would see a good uptake because the supply has not hit in Gurgaon as much in quarter one than we expect in quarter two. You'll be surprised that in many markets, the absorption has increased between 10%-25% level. This is quite a strong aberration. I think overall market seems to be quite strong. From a relative perspective, I would say Bangalore and Hyderabad and Noida clearly doing exceedingly well as markets.
I think Bombay, it is, I would say, core Bombay, which is western suburbs, micro markets of South Bombay and Thane are doing very strong. These I would say are highly attractive markets, but early days even Pune is looking slightly better than what it was, say, in the last two odd years. I would say when we were entering the year, I was thinking that we would be an outlier. There could be a very different market. The year has started at a very strong route for the market in general, and of course for us.
Understood. On the cost side, have you been feeling any impact of cost increases, availability of labor, et cetera, given that you've now scaled up massively and there has been some chatter about minimum wages going up, et cetera?
Yeah, there's a 2.6% minimum wage or so, some markets it has hit, but broadly nothing that was not planned for because wage rate inflation is a very predictable event. When you buy land, especially in the model that we have, we do model the typical wage rate inflation. I think the entire Middle East crisis did have an impact. If you remember, we even discussed this point in the previous earnings call. I would say we were seeing a slightly strained scenario, a very secular strained scenario till about May end. June and now, I would say there is some amount of change happening, still early. Yes, relative to, say, a position of February, there is a cost inflation. There are some very encouraging signs. The steel cost has give or take reduced by almost 12% in between, say, to even a February cost base.
Even items like lift systems have seen a marginal cost drop. Things like aluminum have shot up. Tile availability was a huge challenge in April and May. Marble availability, that supply side issue has got resolved, and there's some amount of price drop also we've seen both in marbles and tiles. Relative to February, still inflated. I would say as and when we would see in the coming months supply side getting more and more recognizing the supply side constraint getting over, I would say the cost drops will happen. I mean, nothing really worrisome, I would say about May, if you ask me the same question, I would have been more worried on the trend, but now the trend has started reversing.
Understood. You have a significant amount of projects ready to get completed in FY 2028. What percentage of inventory would still be unsold for those projects?
I wouldn't know the aggregate number of it, if you just see the specific-
Broad number.
Talks about the 16 projects we have added on the sixth slide. The INR 40,000 crore booking value that we said is more or less, is basically already sold out. It's not that we have a huge inventory because most of these are stellar projects. Like Aristocrat, 98% is sold out. Reserve, we sold more than INR 6,000 crore of inventory.
The next show for presentation actually has all the details by project.
Yeah.
Understood. That's good. That's all from my side. Thank you so much and all the best.
Thank you.
Thank you.
Thank you. Your next question comes from the line of Gaurav Khandelwal with JP Morgan. Please go ahead.
Hi. Good evening. Thanks for taking my questions. My first question is on business development. We've done close to INR 9,500 crore, INR 10,000 crore in first quarter itself, and I'm assuming a lot of this would've been known by the time we had given FY 2027 guidance of INR 20,000 crore. Do you think this year would again be one of those years where we meaningfully overshoot the BD development guidance, and what is the kind of pipeline that we are looking for at least in the next one to two quarters where you would have a more better visibility? That's my first question. I'll have one more follow-up after this. Thank you.
Sure. On business development, actually, no, we didn't have any idea about these when we were issuing the guidance. Actually, the big contributor to this INR 9,500 crore was the INR 7,000 crore land in Noida, which we won in auction subsequent to that. I think that was again the main contributor. I think we've said that on business development guidance, we've intentionally put out a fairly conservative number because we don't want to have any pressure or requirement to do business development just to meet any guidance. We've also said that, I think thinking about business development as more of a replacement to sales is probably roughly where we think a healthy level of business development would be. Our sales for this year guidance is of course, a lot higher than business development.
I think somewhere in that range is where we would expect to end, and Q1 is therefore quite in line with that.
Got it. Just to understand this better, in that context, what are the key risks outside of business development to the FY 2028 positive FCF that you mentioned in this quarter's presentation?
I think that is the key risk, if you want to call it that. I'd say obviously we think we're only putting in capital when projects are going to generate higher than 20% IRR. Generally we feel adding new projects is very positive because we are meeting our rigorous kind of threshold. That to me would be the big risk if we did overshoot that. I think we're quite clear also, both in terms of what stakeholders would like us to do, and we think that the operating cash flow will be strong enough to ensure a very robust business development platform from free cash flows next year. The only other risk is very substantial project delays or very huge kind of cost overruns because of the global situation worsening or things like that. Those would be, let's say, relatively small risks in our view.
Thanks. That's very clear. My second question is, how are you looking at the activities of NRI customers coming back to the market? Have they come back to what the quantum of business activity with them was prior to the Middle East war, or do you still think these are still early days?
First of all, we've not modeled historically our sales on NRI per se. Give or take, we have like a 10% sort of NRI sales. We were fairly insulated. It doesn't create either a major upside risk or a downside risk for us. That being said, I would say there is a structural shift we are seeing within NRI market, more specifically in the Middle East side. I would say previous to the crisis, India was more of an opportunity for NRI customers to look at as an investment base for India. Give or take, their horizon of investment, say two years, three years, four years, was the typical way of them looking India. I'm talking about the bulk of the community. I think that is fundamentally getting changed.
It's still very early because a lot of people are now looking that maybe Middle East is not the safest place anymore, so should they look back moving to India? What should they do outside? Those conversations have happened. I think the closest parallel, and I would say it's very premature to say that, but something like COVID. The triggers to demand after COVID was largely psychological, and that totally shifted the demand patterns for the core property market. I think this is an interesting situation to sort of draw a parallel and study that. I think it's very early, but yeah, the quality of conversations have really shifted from the Middle East market. Barring Middle East market, I think it's pretty much business as usual.
A lot of people are looking India as a good place to invest purely from a long-term currency hedge, and people want to buy properties for their parents or come here back for retirement. That kind of is more or less similar.
Got it. Thank you. If I just can ask one more question. In terms of the KPI for top management, what are the top two, top three things which have the highest weight on the scorecards? Is it market cap? Is it free cash generation? Is it ROE? Just to get some sense.
Yeah, sure. We have four key metrics that we use for incentives for the teams. The first of those is cash collection. We've purposely chosen collections instead of operating cash flow because we think collection encourages overall speed of delivery, which is good for customers, good for long-term health. Whereas OCF can also sometimes in the short term be achieved by cutting down on construction costs in parts that are not increasing immediate collections. We think collections is a better cash metric, so that's the one we've used. We also have imputed profits, which incentivizes both bookings growth for the company as well as margin creation and margin enhancements. That imputed profit is multiplied by what we call our asset management factor, which either rewards or penalizes the teams based on enhancement or reduction in existing locked-in profits. That's the second bucket.
The third is reported profits, where honestly, I think it was more to bring in the discipline and focus on this mattering over the long term. I think there's not very much teams can do other than plotted developments, et cetera, to move and faster delivery to move in the profits, but we think helpful in creating that trajectory. The fourth is a Net Promoter Score where we measure directly from our customers' ratings of their experience with us, and that's of course to incentivize quality customer service and long-term brand enhancement.
Got it. Thanks. That's very helpful. Is there any discussions of switching to a percentage completion accounting from the PCM one currently?
Sorry?
Shifting to percentage completion.
We think it will be very complicated. Our view is that in certain jurisdictions like Haryana and Karnataka, the RERA rules don't support the use of percentage completion accounting. Maharashtra, of course, it is easier to do that. Given a national business, we feel that we'd either probably have to maintain different types of accounting standards in different geographies, which we think would just add to the confusion. We, of course, over the last couple of years have introduced imputed profits, and are publishing those on an annual basis to help signal to markets what our operating numbers look like. Those are more in the direction of percentage completion versus project completion. Hopefully, investors can get a decent sense of where things are based as, one, operating cash flows, two, imputed profits.
Hopefully, as some of the newer projects finally start reaching revenue recognition towards the end of this year and largely next year, we'll also get a sense of reported profits. No plans to switch the accounting.
Perfect. Thank you very much. Those were all my questions.
Thank you.
Thank you. The next question comes from the line of Abhinav Sinha with Jefferies. Please go on.
Hi. Sir, first question on the construction outflow, which has scaled up now to around INR 2,250 odd crores. Where do you see this settling by the end of the year?
Thanks, Abhinav. Very difficult to exactly comment on the exact number, if you look at, I don't think we've published this number, but give or take the percentage that you saw last year, we will try and mimic something closer to that. I would say between 13%-40% is the ideal range to almost ensure that next year PAT is certain. Of course, in certain projects, the outflow will be more on core and shell. Certain projects could be more in finishing, and they both have very different outflow streams, right? I think fair to say, every quarter you'll see a base effect between 20%-40% range of quarter-on-quarter, year-on-year sort of a growth. That's what we ideally would aspire to do, all things remaining still.
I think NGT could be a period where, depending on how much the ban period is a sort of unpredictable COC line item for the year. That aside, I'm very confident that we'll see a very good spike on COC and also operating cash by the end of the year.
Okay, sir. Got a second question on pre-sales, basically. You have earlier said that you would like to have smoother sales across the quarter. Now, looking at the launch pipeline, how do you think this year is going?
I think, Abhinav, we started at a very good note. To be very frank, quarter one is usually the slowest for us, purely because teams go above and beyond in quarter four, and as you know, children have holidays, so people travel a lot. Approvals also, everybody tries to push as much for launches in the quarter four. I think this year, what we did fundamentally different in quarter one was to focus on sustenance fairly well. If you see, while the quarter overall number is quite exciting, especially from a peer group point of view, 41% or so came from sustenance sales. I think we have a good launch pipeline throughout the year. The big ones which are immediately coming are the Bandra launch which we've seen what Worli has done to our portfolio and to the city.
I have very high expectations from Bandra, and similarly, Golf Course Extension Road is a huge launch which will come in Gurgaon, and then there are a couple of launches in Bangalore, and Hyderabad, and Pune. To be very frank, sometimes it's extremely difficult to predict a launch exact timeline. The controllables, therefore, there are some thresholds of timelines we define internally for RERA approvals, there is a launch activation model that we follow. If those tend to get breached because of approval delays, we start shifting our focus more towards sustenance. There will be a degree of predictability on quarter-on-quarter performance. Yeah, there could be some quarters which, because of lumpy launches, could see an exponential jump, but there would be a minimum threshold we would like to maintain quarter-on-quarter. Something like we've done for the last maybe six quarters.
We've delivered always INR 7,000 crore sort of a number. That's sort of almost like an internal bare minimum we always have, and endeavor is INR 8,000 crore, INR 9,000 crore, INR 10,000 crore sort of trajectory, and then taking with launches maybe even further. That's the broad. I don't want to commit you a number per se right now, that's the thought process we model ourselves when we look at a quarter.
Great. Sir, one last question, you've given a FCF positive guidance and put some numbers also for FY 2028. How do you think FY 2027 we should see net debt moving in the next three odd quarters? Thank you.
Abhinav, I think it could be a little bit up and down, depending on how much BD happens and what's the exact collections quarter -by- quarter. I would say roughly to get to the INR 24,000 crore collections and INR 9,000 crore OCF we've guided for this financial year, I think there'll be a build-up through the year, Q4 will probably be the strongest of the four quarters. You'll see Q2, I think, significantly better than Q1. Q3 should be better than Q2, Q4 should be quite strong. I think there's a decent chance, even in the rest of FY 2027, we will be free cash flow positive unless we do a very high level of BD, because I think that the remaining collections for this year, just in the last three quarters, are about equal to our total collections last financial year.
I think there is good opportunities, but I think honestly, the main focus for this year is to make sure we make a lot of construction progress. Some of those collections will, of course, come this year, but a big portion will also happen next year upon delivery. I think that's priority number one. While we know the market is very focused on this free cash flow number, and we are too, but we want to balance that with the opportunities we see for growth at the same time. We think on the large base we've established, if we're able to next year report a 20% ROE and also report 20% booking value growth, we do think that will be well appreciated at that stage.
We think the market is perhaps a little more focused on efficiency right now than growth, because they have more evidence from us in the last few years of the growth than the efficiency. We're seeing the internal numbers. We're quite confident and convinced on the efficiency. Therefore, we don't want to over-correct to respond to the market and kind of not also capture the kind of growth opportunity between us that is present. We do want to keep these two things in balance. We've already said that we would look at INR 10,000 crore net debt as a gap that we would not like to exceed, and we'll work to make sure we stay within that.
That said, I think there's every chance that even in the next nine months of FY 2027, we could be free cash flow positive, and we'll of course, unless we're seeing really exceptional business development opportunities, endeavor to do so. I think FY 2028 is the year that we feel, even if we see great BD opportunity, given the scale we're likely to have of operating cash flows, we're very confident that that year we will be free cash positive. I think it, to us, isn't an absolutely critical deliverable to do that this year so long as we're keeping our net debt broadly in check and we're confident that the BD we're doing will deliver strong growth. I think, obviously last year was a good BD year for us, so we hope to demonstrate the value of that through having a great booking performance this year.
Thanks, all the best to the team.
Thanks.
Thank you. The next question comes from the line of Pritesh Sheth with Axis Capital. Please go ahead.
Yeah. Thanks for the opportunity. Just a couple of questions. In terms of launches, maybe if you can just highlight on the GDV across the next three quarters, we have balanced launches of INR 37,000 crore-INR 38,000 crore. We had almost INR 11,000 crore of launches this quarter. Q2 would be similar or slightly better, and then obviously each second half is expected to be quite better. Just trying to understand how it should be, think about the trajectory that is.
Pritesh, I would say there is an entire launch set of approvals, which just like in quarter one we were adding, right? Let's see where exactly, which dates we get it. Actually, if you ask me, the big ones seem to be on track. Depending on the day we get the approvals, we will take a call whether it makes sense to launch and push this within the quarter or would it make more prudent sense to do it to the next quarter. I think the two big ones are Bandra and GCR Extension, and they have a meaningful impact on absolute performance. Both are very high-margin products, so we don't want to necessarily just to compensate for a number, push them either this quarter. We would like to see if the approvals come the next 15 days, we will push it within the quarter.
If it takes more time, we might take a call to do the next one. There are some approvals which seem to be on track and have already come, and we are doing good things in that. You would be happy to note that projects which we got almost towards the end of the last quarter, like there was a project in Hyderabad which did about INR 300+ crore, has already crossed INR 650-odd crore in the cumulative sales by now. Samaris has crossed INR 1,500 crore as we speak. I think there is some amount of launches of last quarter towards the later part will continue to see growth. I think we will take a judgment call somewhere, I would say, third or fourth week of August, looking at the approval timing.
Fair to say, the overall launch calendar, 15 days here and there aside, is absolutely on track and looks very promising.
Sure. Perfect. That's helpful. The bigger ones, Bandra and Golf Course Road, would be either Q2 or Q3, not Q4.
Yes.
That is what one should assume.
Q2 or Q3, no Q4. I think it's either within this quarter or maximum next.
Okay. Fair enough. Firstly, thanks for the free cash flow guidance, cash flow guidance overall, and the free cash flow target. Just one question on that. Obviously, there would be some collections, cash flows arising out of next year's sales number. Have you still assumed a growth over this year's base to arrive at those cash flow numbers? Just directionally, what are we thinking in terms of how our business is going? How much sensitivity is there if, let's say, on pre-sales, we flatten out next year, how much impact it could have on that INR 11,000 crore-INR 12,000 crore OCF that we are probably expecting next year. Yeah.
Yeah, Pritesh, I think this builds in for this year what we've guided, the INR 39,000 crore bookings, INR 24,000 crore collection. Yes, there would be some growth assumed in that, but I don't think it's anything extraordinary. This is really our CBE. I think, could there be some downside risk if the sales situation in the market very significantly deteriorates or the construction schedules get very disrupted by global events? Of course, there could be some. I would say there's as much or more upside risk if markets hold up and we're able to, as Gaurav said, launch things like Bandra, which is a big project for us. Ashok Vihar has also been making some progress and approvals. If some of these launches, there could also hopefully be some upside potential to this.
Yeah, it is a CBE basis, our current view of how things will improve. We've made an attempt to neither make it too aspirational nor too pessimistic.
Sure. Pretty helpful. Thanks for the disclosures. Thank you. All the best.
Thank you.
Thank you. The next question comes from the line of Girish Choudhary with Avendus Spark. Please go ahead.
Yeah. Hi. Thanks for the opportunity. My first question is, again, with respect to your guidance on the OCF, which is around INR 8,600 crores for the balance of fiscal 2027, and also you guided for collections of roughly around INR 19,650 crores, right? The implied gap or, let's say, the implied outflow is around INR 11,000 odd crores, right? If I look at the Q1 construction and other project outflow was INR 4,600 crores. The implied INR 11,000 crores for the rest of nine months is a sharp lower run rate versus the Q1. If you could just explain how should we look at going ahead in terms of both construction and other projects related outflow?
Girish, the construction spend obviously will improve going forward. That will also depend on what kind of projects are going, at what stages they are. Those will vary a little bit. What we have said that over the entire year, we will be able to generate INR 9,000 crores of OCF, with a INR 24,000 crores of collection. Now, between that collection figure and OCF, there are several cost items like construction spends, other related outflows. Other related outflows, there is a brokerage marketing spend, which are directly or indirectly dependent on the kind of sales launches what we do. Those will keep changing, but what we are confident is that if we are able to deliver that INR 24,000 crores of collection, we will be in a position to generate that INR 9,000 crores of OCF.
Got it. If you could help us give a detailed breakdown of this other project-related outflow in terms of some of the key items like JV partner payments or let's say marketing.
I can summarize, I don't have the number of an item, but the other cost includes lot of statutory taxes like GST, TDS, JV partners outflow. The third is advertising and marketing spend, those, and other overhead items. Maybe we can connect offline. Maybe Satish can give you the detailed breakup also, if required. Those are the major items which goes into the other outflow.
Yeah. Sure. That will be helpful. Second, specific to the Hyderabad launch, the Brooklyn Avenue, the launch number is around 2.66 million sq uare feet, but sales you have achieved 260,000 sq uare feet of sales. If you could just clarify how much of the inventory was actually released for sale or is it because of the project being launched in the late in the quarter?
Actually, we launched it almost, very frankly, towards the last week of the month. The team which is driving this was chasing a glorious number of becoming the best, highest quarterly number by any zone ever. They wanted to push, and left it to us, I would have pushed it to quarter two. The interesting thing is we've already crossed, we did about give or take INR 300+ crores in quarter one, and by now we've crossed close to INR 650 crores. I think in the next few weeks, the endeavor is to hopefully cross between INR 900-INR 1,100 crores, some sort of a number. Yeah, just about the team wanting to push and achieve. There's a healthy competition between different zones, and this was a record that south business wanted to beat, and they actually now have this new record.
Just small, I would say, snippets, yeah, the project is doing fantastic.
Got it. That's helpful, and thank you.
Thank you.
Thank you. The next question comes from the line of Rahul Jain with Elara Capital. Please go ahead.
Hi, sir. Thanks for the opportunity. Last year we saw you entering a number of new markets, tier 2 cities, tier 2 markets through plotted developments. Should we look at FY 2027 also that you'll add few more cities to your pipeline or deepen your presence in those markets?
Sure. It is very opportunistic. We have a set of cities which we've defined a set of criteria from per capita income to infrastructure, policy environment, the quality of development profile that the city finds aspirational. We've done a group of cities, and we have a team which is continuously scouting for opportunities. To be very frank, this is still a very tough scale as a business per se for us. It's not going to be more than 10%-15% of top line. Yeah, we've expanded to many cities by now. We've gone to Nagpur, Indore, Faridabad, Kurukshetra, and many more cities. We've had stellar success, including sold-out projects by now. Yes, we could have a situation that maybe two to three projects again, we could sign up in the next couple of months.
Again, there is no desperation to essentially target a city and have to enter, because usually the thumb rule is that you get a booking value of INR 500 crore to INR 700 crore after one acquisition, but a very high PAT margin. The criteria for us is that if the margin profile is not super attractive, we don't want to actually enter to a tier 2 city. At the moment, there's a good pipeline, and won't be surprised that by the end of the year you'll see two, three new cities getting added up, but that's not really something we are aggressively driven towards.
Got it, sir. Very clear. Thank you.
Thank you.
Thank you. Your next question comes from the line of Kunal Lakhan with CLSA. Please go ahead.
Yeah, hi. Thanks for taking my question. Just on the revenue recognition bit that we have forecasted for 2027-2028. Do we have any idea how much of this INR 40,000 crore would come in 2028? I am just trying to work the math on the 20% ROE would be based on what revenue base?
Yeah, I think we've purposely just given it as an indication. Of course, exactly what revenue recognition happens is dependent on the percentage completion. Even some percentage completion will remain after OC on the exact levels of sales. I think forecasting all of that can be a little bit complicated, but we've tried to now give as much information as we can, if you look at the annexures in our presentation, which have a project-by-project breakdown of what is sold and so forth. You should get a generally good sense. What I think we were trying to highlight is, because we've got questions on what will lead to this 20% ROE. It's very clearly this set of projects reaching revenue recognition is what's going to very significantly increase both revenues, margins, and therefore reported earnings and ROE.
We just wanted to put out those list of projects to help the market get a better sense of where things stand. Obviously, what that shows is that over the last two years, FY 2025 and 2026, the booking value of these projects that have reached revenue recognition is about INR 17,000 crore. That's going up to INR 40,000 crore. Almost 2.5x just the booking value recognition. Of course, in addition to that, there are other important things to keep in mind, such as the GPL share of those projects is moving from 70%-odd to close to 90%. We think these are projects that have been launched in a better part of the cycle, outright ownership, so the margins of these should also be higher.
All of that hopefully should indicate why we're reasonably confident on getting to this 20% ROE next year.
Actually, I was just trying to get exactly the same number what you just said. I'm trying to get my head around that what could be the margins on these INR 40,000 crores. Could it be in the upwards of 30% in terms of EBITDA margin or like in that 25%-30% range?
Yeah, I think we should assume the same. We've guided to this PAT margin of 15%. Some projects will be above, some might be slightly below, but roughly that should be, I think, the assumption.
The work completion could be another percentage that will get multiplied. I'm assuming you were assuming 15% to INR 40,000 crore, INR 6,000 crore business in next year. There will be some projects which could be fully completed.
Partially.
80% and 90% work completion.
Yeah. Of course, then there will be some associated overheads and other things that are not.
Understood. Considering the land prices also have gone up significantly over the last few years. The projects that we are currently underwriting, what kind of IRR or margin expectations do we build in?
There's no change. We would hope in good markets to be able to deliver a bit better than those IRRs, certainly some of these projects that's coming up for delivery will have better than 20% IRRs. We're maintaining the expectation of 20% IRR, maintaining the expectation of 15% PAT. As we said, we're in no burning urgency to do business development. We feel we have a very healthy portfolio across markets. If we're not seeing land values aligned with that, we're happy to slow down temporarily. Recent evidence is we continue to find good opportunities. We're quite happy, for example, with the auction land we purchased in Noida in Q1 where the land value to expected booking value is well under 10%. There continue to be, we feel, good opportunities.
Say the INR 20,000 crore-INR 22,000 crore of operating cash flow that we are expecting over next seven quarters or so. Would we focus more on ramping up the business development or we just try to manage our debt levels in a way?
I think, Kunal, as I was trying to explain earlier, we want to hold these two things in balance. Look, it's very easy for us to say, let's just slow down business development. It's not going to hurt sales for the next couple of years, and we can generate strong free cash flows and get to zero debt or whatever it is. We're not really seeing how that actually enhances the long-term value of the company, the long-term discounted value of our cash flow. What we're trying to do is get that balance right. We clearly think there are problems with getting too leveraged and too aggressive on growth, which is why we've always tried to raise capital on the equity side if needed before. Now we're very clear that we want our OCF from next year onwards to fully cover business development.
At the same time, if we're able to do INR 39,000 crore sales we've guided for this year and grow that by close to 20% a year, that is also creating a very meaningful value pipeline for the company. We don't want to get carried away with this, we only want to generate cash flow and are very happy to sacrifice growth. It's getting the balance right that will truly create value for the organization. I think going too aggressive on sales and discounting our net debt CAP or the importance market is attributing to us getting to free cash flow positive is not a good idea, but nor is slowing down business development entirely, because that is bound to affect future IR sales, even if you do have a reasonable pipeline. We're obviously able now to launch almost every project we're adding within a year.
Again, we hope to show this year, given the INR 42,000 crore business development last year, a very strong sales performance. I think we're quite keen to balance these two. We think that means roughly free cash flow breakeven going forward for the rest of this year, and hopefully strongly free cash flow positive next year, while not sacrificing on the investments needed to generate continued strong growth.
Great. Thanks, Pirojsha. Congrats on the great pre-sales, and all the best.
Thanks, Kunal.
Thank you. The next question comes from the line of Akash Gupta from Nomura. Please go ahead.
Hello, am I audible?
Yes, sir, you are audible. Please go ahead.
Hi, sir. Congratulations on a fantastic quarter. My first question is again on the 20% ROE number for FY 2028. 20% ROE would essentially imply INR 35 billion-INR 40 billion of PAT versus INR 18 billion in FY 2026. Similarly, on the revenue side, this would imply maybe INR 300 billion of top line versus INR 50 billion in FY 2026. This is with respect to the slide eight I wanted to discuss. Is this a valid assumption?
Well, we certainly think so. Sorry, you mean is your assumption valid? Not that particular is the claim valid. Well, I think we are sticking to what we have put out. Yes, obviously, 20% ROE, our net worth is already about INR 20,000 crores. Obviously,-
4,000.
We have to have INR 4,000 crore or more of PAT to get there. That is certainly correct. I think I will not comment for now on your revenue assumptions, et cetera, because there, of course, we will see what the margins are. Yes, I think also this whole idea of putting out this list of projects was to try to create more confidence in what will get us there. Now, if we deliver these projects versus our current understanding of where costs stand, what the revenue to be recognized is that we will very much get to this. What are the risks to this, you could ask. Largely, they would be focused on project deliveries happening on time. A big part of this is slated for the second half of financial year 2028. This industry is unfortunately, of course, notorious for delays of various kinds.
Another risk is a significant part of this is in NCR, which of course has these NGT bans and other things. But all of that factored in, we're still confident that this will get delivered. It's, of course, after we've put this in the public domain repeatedly and commented on it. I think we're all extremely motivated to make sure there is no slippage and that it does in fact happen, and we'll leave no stone unturned to ensure it does happen. The other risk, of course, could be on any kind of extreme cost escalation. That to us seems very unlikely, even despite the kind of very difficult global situation there has been over the last quarter. We've not seen things get totally out of whack, as Gaurav was explaining earlier. There are risks.
We do have to execute well, but we feel those risks can be contained, and we're extremely focused on making sure we deliver this number.
Understood. Thank you for that. My second question is on the launch pipeline for the second quarter. I understand there's one in Gurugram and possibly Bandra might come, but what other projects are in the advanced stages of approval, which may be launched in 2Q?
Quite a few. Ranging from projects in Bombay, we have quite a few inventory left in Panvel, so we would like to add a new launch in Panvel. There is a launch which we anyways have just done in Hyderabad. From our definition, it is going to be a launch, and we are seeing a very strong traction in Hyderabad for that. We are pushing one more launch in Bangalore. There's a launch we did in Noida, another few towers we will open up in Noida. A few launches planned up in Westies, which is a combination of Pune and even Ahmedabad.
I think we have a bunch of launches across markets, but as I mentioned, apart from Bandra and GCR extension, as I mentioned that some of it will depend upon the approval progress, and we'll take a view that which of these we would like to do within the quarter, which we would like to move outside this quarter to deliver a bigger number from those specific projects. Fair to say, this quarter is going on the track of the overall trajectory we would want from this quarter.
Understood. Sorry if I may add just one more question. Just from a payment plans perspective, what percentage of our new launch, for example, we are offering payment plans versus a construction link plan, and how does that impact our cash flows? Just some thoughts on that, please.
Sure. I think you mean to say what industry normally calls PLP, possession linked payment plans.
Yeah.
We do pick up that to drive up dead inventory sales or projects which are just either getting OC or about to get OC. To give you a sense, previous quarter, which is the quarter we're talking about, our Q1 sales on PLP bucket was very low. I think probably, if my memory serves me, 5.1%, of which I would say a bulk was in two projects which are seeing OC within the next 6- 12 months. Technically, we tag it as a PLP, but it's not really PLP. Then there are, say, three units here, two units here, dead inventory across GPL that we sell. Give or take, not more than 5%.
There is a cumulative sales and project which is within the year, if I exclude that, maybe INR 100 crores, INR 200 crores or maximum INR 250-odd crores could be projects which are in different stages of construction we would have wanted to liquidate, which is very small at our scale. We are quite obsessed on quality of sales and cost of sales in an industry where cost of sales in our peer group can range from 5%-10%. Even in Q1, our cost of sales is about 4%, thereabout.
Understood, sir. That's all the question I had. Thank you so much.
Thank you so much.
Thanks, Akash.
Thank you. Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to the management for closing comments.
I hope we've been able to answer all your questions. If you have any further questions or would like any additional information, we'd be happy to be of assistance. On behalf of the management, thanks again for taking the time to join us today.
Thank you.
Thank you. On behalf of Godrej Properties, that concludes this conference. Thank you everyone for joining us, and you may now disconnect your lines. Thank you.