Companies
How Pirojsha Godrej changed India’s real estate business
Summary
- Before the covid-19 pandemic, India’s real estate business was in a slump. Many developers defaulted and quit the market. Larger developers, meanwhile, gained share. Godrej Properties, whose shares shot up 239% in the last five years, was among them. Here’s the inside story.
Bengaluru: Sometime before the initial public offering (IPO) of Godrej Properties Ltd, in 2009, Pirojsha Godrej, who was then its executive director, met up with the executives of a prominent Mumbai-based investment banking firm.
The investment bank’s feedback wasn’t that encouraging. Godrej’s property business, executives from the bank said, wasn’t ready for an IPO yet; the developer needed to build scale.
In 2009-2010, Godrej Properties had reported revenue of ₹242.7 crore, as per a company presentation. In comparison, DLF Ltd, one of India’s largest developers, was many times its size with revenue of ₹7,422.9 crore that year.
Godrej Properties ignored the investment bank’s advice and went ahead with the IPO in December 2009. It raised around ₹469 crore in a public listing that was subscribed four times.
The IPO was the first listing by any Indian realty firm in at least two years, and came after the economic meltdown of 2008, which began after the Lehman Brothers collapse. The overwhelming response to the IPO, in a gloomy economic climate, was due to the Godrej Group’s good corporate governance record, analysts had commented back then.
India’s residential real estate sector subsequently witnessed a massive shake-up among developers. Many real estate companies went bust and the sector suffered from a nearly eight-year-long slump until 2020.
The turnaround, since then, has been quick. Larger, listed developers consolidated the market and grabbed higher market share. A close battle emerged between the top four: DLF, Prestige Group, Macrotech Developers and Godrej Properties.
In 2023-24, Godrej Properties clocked ₹22,527 crore in sales bookings, an 84% jump from the previous year. In the process, it became the largest listed developer in terms of sales (see chart).
It sold 14,310 homes with a total area of roughly 20 million sq. ft during the year. The company’s net profit increased to ₹725.27 crore in 2023-24 from ₹571.39 crore in the preceding year. Revenue from operations grew to ₹3,035.62 crore from ₹2,252.26 crore over the same period. The company’s targets for 2024-25 are even more aggressive—sales of ₹27,000 crore. Meanwhile, its shares have shot up 239% in the last five years and is currently trading at ₹2,814 a piece.
Can Godrej Properties grow from here on? And how did the company manage what it did?
Money and land
Pirojsha joined Godrej Properties in 2004 as a management trainee to learn the ropes. Milind Korde was then the chief executive officer (CEO). The company did about ₹40 crore of sales that year, he recalled.
After spending a couple of years at the firm, the Godrej scion pursued a degree in business administration from the Columbia Business School. He returned to India and joined the firm again in 2008, just weeks after the Lehman crisis. Four years later, he was appointed managing director and CEO.
Pirojsha’s understanding of the sector has evolved with time. “My sister Nisa and I work together, and discuss a lot of things. I have learnt many life lessons, and about leadership from my dad (Adi Godrej, chairman emeritus, Godrej Properties), but not real estate. The real estate business is something I learnt on the job, and from the mistakes we have made," Pirojsha said.
Pirojsha took over as CEO when he was 31. The company, back then, was not even counted among the top 10 developers. “The focus was on how to make Godrej Properties a relevant player," Pirojsha said. “Even if I was promoter-CEO, we wanted good talent and a professionally-run team that was different from other developers," he added.
Godrej Properties then spread across 12 cities, leaned heavily on an asset-light model that was risk averse, and took up projects through joint development agreements and the development management route. Development management is a low-risk model, where a developer strikes an agreement with a landowner or another developer to construct, market and sell a project for a fee/share of the revenue.
Unlike its larger peers, DLF and Unitech Ltd, Godrej Properties largely stayed away from land banking and land buying.
In the following years, Pirojsha changed tack.
Initially, he decided to focus mainly on four residential markets: Mumbai metropolitan region (MMR), Delhi-national capital region (NCR), Pune and Bengaluru. For plotted development projects, the company started buying land in smaller cities during the real estate slowdown of 2018 and 2019.
To fund its growth and land acquisitions, Godrej Properties raised ₹1,000 crore by selling shares to investment firm Gamnat Pte Ltd (managed by Singapore-based GIC), and then ₹2,100 crore by issuing equity shares to qualified institutional buyers during the period. In 2021, when the real estate market turned around as the covid-19 pandemic waned, the company again raised ₹3,750 crore, selling shares to a clutch of global investors.
“In the past, we could never take advantage of an upcycle. We didn’t want to miss that opportunity this time around," Pirojsha said. “The capital raising gave us a war chest, and we acquired land quite rapidly. So, when this upcycle came, we took advantage of it. Real estate is a cyclical business. We want to make the right decisions at the right time in a cycle," he added.
“When I took charge, Pirojsha and I brainstormed, and took a bold direction—to go for the kill. We had a strong view that the market was turning around for the long-term. We started closing land transactions in our key cities," said Gaurav Pandey, who became the company’s managing director and CEO in January 2023. Earlier, he was the CEO of the firm’s north zone business.
Between 2022-23 and 2023-24, Godrej Properties’ business development activity rose sharply, as it acquired land with 47.84 million sq. ft of developable area, and an estimated booking value of over ₹53,000 crore.
Apart from the four key markets it is operational in, the company entered Hyderabad last year with two land acquisitions. However, it is the company’s success in the NCR market that differentiates it from other developers. From ₹1,482 crore of sales or booking value in 2018-19 in the region, it clocked ₹10,016 crore last year, making the NCR property market the largest contributor in its portfolio. The company launched ‘Godrej Zenith’, a high-end project in Gurugram’s Sector 89. The project has been its most successful launch till date, with sales bookings worth ₹3,008 crore.
While DLF largely focuses on the high-end price segment and continues to command a pricing premium versus other developers in its core Gurugram market, Godrej Properties sells homes and plots across a wide price range.
Trust factor
Santhosh Kumar, vice chairman of property advisory firm Anarock Group, said Godrej Properties was able to capitalize on the NCR market during the downturn that preceded the pandemic. There was a trust deficit among homebuyers after many local developers failed to deliver projects. The Godrej brand worked again.
Keki Mistry, former vice chairman and CEO of the erstwhile HDFC Ltd, a leading housing finance company that was merged with HDFC Bank Ltd last year, said the Godrej brand brought in a lot of trust, which is a key factor in real estate. “Over the years, whenever I met international investors and we talked about real estate in India, they always thought of Godrej Properties. The company was conservative in the early years when many developers were not, and investors liked that. So, the trust factor, Pirojsha’s style of communication, project execution and the fact that they always built for a wide homebuyer base worked well for them," said Mistry, who at HDFC has worked with all the top developers.
Execution and quality
The spurt in growth Godrej Properties is experiencing is internally referred to as its ‘quantum growth phase’.
Real estate, at the end of the day, is an execution business. And in this growth phase, Godrej Properties doesn’t want to take its eye off the execution engine.
“Besides the huge brand value, the company’s quick decision making and customer-centric approach differentiated them. They identified the right land parcels, executed projects well, and engaged with channel partners closely," said Santhosh Kumar.
Pirojsha said the vision for the company is to continue to build scale, as well as improve quality. “The aspiration is to (not only) sell the most, but also to execute well and deliver," he said.
Last year, Godrej Properties appointed a chief quality officer to head a pan-India team under a separate quality vertical. This team would audit every project.
In a regulatory filing in 2023, the developer had said that it had appointed an external expert to undertake an independent assessment of quality issues in its ‘Godrej Summit’ project in Gurugram after certain flaws were identified in the construction quality. The company stated that it would pay up to ₹155 crore towards repair work. The assessment identified the presence of chloride in concrete used in the project, which leads to corrosion of the steel reinforcement when in contact with water.
The divide
In March, ‘Godrej Vistas’, a high-end residential project, was launched in suburban Mumbai’s Vikhroli area under a development management arrangement. Godrej & Boyce owns the land, while its unit, Godrej Construction, will design and build the project. Godrej Properties is the development manager—it will market the project and get a 10% revenue share as fee.
The same arrangement was followed earlier for ‘Godrej Platinum’, a million sq. ft residential project in Vikhroli.
However, the Godrej Group is in the middle of a split.
On 30 April, the conglomerate stated that the group’s third-generation siblings, Adi and Nadir, had reached an agreement to separate from their cousins Jamshyd and Smita. Godrej & Boyce will go to the families of Jamshyd and Smita while the families of Adi and Nadir will inherit the group’s listed companies, which also includes Godrej Properties.
So, what happens to these joint projects and the land the family owns in Vikhroli?
The Godrej family, in a joint statement, said the future development of the Vikhroli land would happen as per the existing memorandum of understanding (MoU) between the owner-developer (Godrej & Boyce) and the development manager (Godrej Properties).
The prime land in question is estimated to be around 3,000 acres. Half of the land bank is covered by mangroves and hence is a no-development zone. Another 300 acres or so are encroached upon. The remaining portion of the land, which is still sizable, could be used for real estate development.
According to the agreement, for the first six years, Godrej & Boyce will not carry out any real estate development outside the land it owns today, mainly in Vikhroli. In a post-earnings call on 3 May, Pirojsha told analysts that after six years, Godrej & Boyce is free to pursue development on its own, but cannot use the ‘Godrej’ brand name for those projects. Hence, the two group companies will not compete in the real estate business using the same brand name.
But, while the MoU between the two Godrej entities remains intact for the Vikhroli land, the pace of development remains uncertain as Godrej Properties has no say in it, a report by brokerage firm Motilal Oswal Financial Services pointed out.
Delivery and debt
Like we mentioned earlier, there is rising competition between the top four developers. All of them are chasing growth and consolidating the market. It won’t be easy for Godrej Properties, going ahead.
“For these four developers, it’s going to be a game of funding to support their growth plans," said Parikshit Kandpal, vice president of research at HDFC Securities, a brokerage firm. “In the next 10 years, the top 10 developers’ market share in pre-sales will increase from the current 30% to 65-70%," he added.
Among the four, Prestige and Godrej Properties have been the most aggressive when it comes to land or project acquisitions. They also have a huge pipeline of project launches.
But for Godrej Properties, given the kind of high sales momentum right now, further growth won’t be easy.
“They are already at the top. To grow from here and reset the entire sales base will be challenging. A lot will depend on how much business development they do, and if demand sustains," Kandpal said.
The developer delivered around 12.5 million sq. ft in 2023-24 and aims to scale it up to 15 million sq. ft in 2024-25. Given the expanding project portfolio, analysts said that they would monitor execution, project delivery timelines, and debt management.
Godrej Properties had a net debt of ₹6,200 crore as of 31 March. Debt reduced by ₹700 crore in the March quarter mainly due to good cash collections from customers.
Pirojsha, meanwhile, remains confident.
“The sky’s the limit. The company has the advantage of access to capital, including low-cost debt," he said. “Customer loyalty to the Godrej brand is a huge advantage. We are a truly national developer with a presence in the key cities, and have every opportunity to remain the leading player."
