Shares of Godrej Properties extended their losses from February 3, falling another 10 percent on February 4 as investors continued to worry after yesterday’s announcement of a deal and December quarter earnings.
The company had announced that it will invest Rs 400 crore to acquire a 10 percent stake in DB Realty as well as set up a joint venture to focus on slum redevelopment projects in Mumbai.
“The partnership will allow us to explore big opportunities in the redevelopment space in Mumbai. While DB will be look at business development and prepare the projects sites for approvals, Godrej will take on the development, sales and marketing aspects,” Pirojsha Godrej, executive chairman at Godrej Properties, said on a call to analysts.
The deal is being termed as a problematic capital allocation decision given the risks involved with slum rehabilitation projects.
Brokerage firm CLSA India said that the deal with DB Realty “lacked merit” due to the direct purchase of equity stake in the former. Slum rehabilitation projects are prone to get stuck in regulatory quagmire and defaults, the brokerage firm said.
CLSA India also highlighted that the deal structure between Godrej Properties and DB Realty was “convoluted” and “unwarranted”. The brokerage retained its ‘sell’ call on the stock.
Brokerage firm Jefferies India said that the investment in DB Realty and slum redevelopment project is a near-term de-rating event for the stock.
Speaking to CNBC-TV18, DB Realty managing director Shahid Balwa clarified, “The board composition will remain as is in DB Realty. Pinnacle Investments and Godrej Properties will come in as strategic investors.” At the standalone level, DB Realty is hoping to be free of debt by March 2022, he added.
Besides the deal, investors were also disappointed by the company’s sales bookings in the quarter ended December. The booking value declined 40 percent sequentially to Rs 1,540 crore in the reported quarter due to a delay in launch of projects.
Jefferies India retained its ‘buy’ call on the stock as the March quarter is expected to be promising, but cut its price target by 27 percent.
On February 3, shares had declined 6.6 percent.
Today, shares were locked at their 1o percent lower circuit limit of Rs 1,501.1 on the National Stock Exchange.