Godrej Properties Stock Dips 5% as Robust Pre-Sales Overshadowed by Slow Collections

Godrej Properties' financial performance for the second quarter of fiscal year 2026 (Q2FY26) revealed a mixed picture for investors. The company achieved robust pre-sales, or bookings, amounting to ₹8,505 crore, marking the third consecutive quarter with bookings exceeding ₹7,000 crore. This strong performance was fueled by new project launches like Godrej Regal Pavilion in Hyderabad and Godrej Skyshore in Mumbai. For the first half of FY26 (H1FY26), pre-sales reached ₹15,587 crore, representing 48% of the full-year target and marking the highest ever H1 booking value for the company.

However, a significant concern emerged from the collection figures. Collections in Q2FY26 saw a marginal year-on-year increase of just 2%, totaling ₹4,066 crore. For H1FY26, collections grew by 10% to ₹7,736 crore, meaning Godrej Properties has only achieved 36% of its FY26 collections guidance, indicating a substantial gap to cover in the second half of the fiscal year. In the real estate sector, collections are closely tied to achieving delivery milestones for residential units.

The management expressed optimism for an improvement in the latter half of FY26 (H2FY26), expecting higher delivery volumes in the fourth quarter (Q4). The company aims to deliver approximately 10 million square feet (msf) in FY26, having already delivered around 3 msf in H1FY26. Godrej Properties has maintained its FY26 pre-sales guidance of ₹32,500 crore, a 10% year-on-year increase, which appears conservative given its launch pipeline.

Further complicating the outlook are concerns about the sustainability of demand momentum in key markets like Mumbai and Bengaluru, with analysts suggesting that the high growth rates seen previously may moderate. Godrej Properties is targeting a medium-term pre-sales compound annual growth rate (CAGR) of 20% and aims to increase its market share from 4% to 5-6% by expanding into tier-2 cities.

On the business development front, nine new projects were added in H1FY26 with a potential revenue of ₹16,300 crore. However, increased investments in land acquisition and approvals, largely financed through debt, have led to a rise in net debt. The net debt-to-equity ratio increased to 0.3x in Q2FY26 from 0.26x in Q1FY26. Operating cash flow also declined by 24% year-on-year to ₹2,137 crore in H1FY26, highlighting the importance of improving cash flow to manage debt.

The stock's performance has been weak, declining 22% year-to-date in 2025, underperforming the Nifty Realty index. Brokerage firm Motilal Oswal Financial Services noted that while gross margins for recognized projects remain healthy, higher operational scale has led to proportionally greater overheads, impacting operating profits. The firm anticipates that revenue recognition from sales booked over the past two years, which had a better margin profile, will occur after FY26/FY27, potentially alleviating some investor concerns.

Impact: This news impacts the Indian stock market by highlighting potential cash flow challenges for a major real estate developer, despite strong sales bookings. Investors will closely watch Godrej Properties' ability to convert its bookings into actual collections and manage its debt levels. The discrepancy between pre-sales and collections could signal broader issues in the real estate sector's cash conversion cycle. The stock's underperformance is a direct reflection of these concerns.

Rating: 6/10

Difficult Terms: - **Pre-sales**: Total value of property units booked by customers, indicating future sales potential, but not yet realized cash. - **Collections**: The actual amount of money received from customers for property sales, including installments and payments for delivered units. - **YoY (Year-on-Year)**: A comparison of a metric from the current period against the same period in the previous year. - **Sequentially**: A comparison of a metric from the current period against the immediately preceding period (e.g., Q2 vs. Q1). - **H1FY26 (First Half of Fiscal Year 2026)**: Refers to the period from April 1, 2025, to September 30, 2025. - **FY26 (Fiscal Year 2026)**: The financial year running from April 1, 2025, to March 31, 2026. - **Guidance**: A forecast or projection provided by a company regarding its future financial performance. - **msf (million square feet)**: A unit of area measurement commonly used in the real estate industry. - **CAGR (Compound Annual Growth Rate)**: The average annual growth rate of an investment over a specified period longer than one year. - **Tier-2 markets**: Cities that are smaller and less developed than major metropolitan areas (tier-1 cities) but are growing significantly. - **Business development**: Activities undertaken by a company to increase its revenue and growth, such as forming partnerships, securing new projects, or entering new markets. - **Net debt-to-equity**: A financial ratio that measures a company's leverage by comparing its total debt minus cash and cash equivalents to its shareholder equity. - **Operating cash flow**: The cash a company generates from its normal business operations. - **Recognized projects**: Projects for which revenue has been officially recorded in the company's financial statements. - **P&L (Profit and Loss)**: A financial statement that summarizes the revenues, costs, and expenses incurred during a specified period, typically a quarter or a year.