Godrej Properties Financial Analysis Sample | Finance Assignment Help

This sample assignment is a financial analysis sample that evaluates the financial health of Godrej Properties, one of India’s leading real estate developers. Prepared as part of a Financial Accounting course at IIM Kozhikode, it offers a comprehensive look into the company’s strategy, revenue practices, accounting policies, balance sheet, and financial performance using tools like Ratio Analysis and DuPont Analysis. This sample is ideal for students pursuing MBA, Finance, or Accounting who want insights into real-world case studies and academic formatting.

Note: If you are also looking for Finance Assignment Help, contact us!

Indian Institute of Management, Kozhikode

Report on – “Godrej Properties: Financial Analysis and Health Evaluation”

Submitted in partial fulfillment for completion of  the course 

INDUSTRY OVERVIEW

Godrej Properties falls under the real estate industry which is one of the largest industries in India and contributes significantly to its economy. It includes commercial, office, residential or retail property markets. With an expected CAGR of 18-19% from 2020 to 2030, the real estate market size in India is estimated to be around one trillion dollars by 2030. It is expected to grow exponentially till 2047.

The boom in the Indian real estate market has been caused by multiple factors like the growing percentage and size of the middle-class population, rapid urbanization, demand for affordable housing etc. In 2022, it was valued at around 477 billion dollars. It is also the second-largest employment-generating sector in the country. 

Multiple players operate in the fragmented real estate market of India. Godrej Properties, DLF, Prestige Estates Projects Ltd.,Oberoi Realty Limited and Sobha Limited are key players and market leaders in the Indian real estate industry.

Key Characteristics and Trends

• Growth in Office Real Estate – Many sectors, including IT, manufacturing, e-commerce, BFSI and engineering are increasingly leasing office spaces, showing consistently high absorption rates. Real Estate Regulation & Development Act (RERA) and Real Estate Investment Trusts(REITs) have led to an increase in commercial real estate investments as well. International PE investors and Indian HNIs find investing in office properties very lucrative due to the high rental rates and profit margins.
• Growth in Demand for Affordable Housing – As estimated by the India Brand Equity Foundation, there exists ten million units of housing shortage in Indian cities, which will only increase given the rising urban population of India. This shortage is leading to a push towards demand for affordable housing. Government initiatives like Special Window for Completion of Construction of Affordable and Mid-Income Housing Projects (SWAMIH) and Pradhan Mantri Awas Yojana (PMAY) are also aligned with this demand.
• Digital Transformation – Recently, the real estate industry has started moving towards digital technologies like AR/VR, online websites and AI/ML. This is helping them with streamlining the whole process and increasing their reach.
• Growth in Demand for Sustainability – Real estate customers are growing increasingly conscious towards eco-friendliness and sustainability. This is leading real estate companies in India to adapt construction practices that are focused on providing sustainable solutions.

Porter’s Five Forces Analysis for Godrej Properties:

• Customers – Customers range from residential buyers to corporate buyers. There is increasing growth in customers in the tier 1 cities like Bengaluru, Mumbai and Gurugram where Godrej Properties has an eminent presence.
• Competitors – Major competitors of Godrej Properties include both national as well as regional companies, including DLF Ltd., Oberoi Realty, Sobha Ltd, etc
• New Entrants – The requirement for heavy capital investment and strict regulations make the barrier to new entrants in the Indian real estate industry high. 
• Substitutes – Renting or leasing is a common substitute for real estate purchase.
• Suppliers – Construction raw materials like cement and steel, labor and construction technology service providers, constitute the supply chain of this industry. The costs of the properties depend significantly on the cost of these.

COMPANY STRATEGY

Godrej Properties has adopted a comprehensive strategic approach that balances growth, sustainability, and innovation. The company focuses on five key strategic pillars:

Expansion Plans:

• Geographical Diversification: The company is actively expanding its footprint across India, with a major focus on key real estate markets such as Mumbai, Bengaluru, Delhi/NCR, and Pune. The expansion is driven by both organic growth and strategic land acquisitions, focusing on premium and affordable housing segments.
• Pipeline of Projects: As of FY 2023-24, Godrej Properties has 102 ongoing and upcoming projects with a total developable area of 223 million sq. ft. This large project pipeline ensures sustained future revenue growth.
• Asset-Light Model: The company operates under an asset-light model, partnering with landowners through Joint Development Agreements (JDAs), reducing capital outlays and increasing ROE.

Sustainability Integration:

• Green Certifications: Godrej Properties is a leader in green building initiatives, with most projects obtaining or in the process of obtaining green certifications. This not only reduces the environmental impact but also enhances brand value and appeal to environmentally conscious buyers.
• Energy Efficiency & Resource Management: Initiatives such as rainwater harvesting, renewable energy adoption, and waste recycling are integrated into all projects. Sustainability goals are aligned with the United Nations’ Sustainable Development Goals (SDGs), focusing on climate action and resource efficiency.

Innovation & Operational Excellence:

• Innovative Construction Techniques: The company invests in advanced construction technologies such as precast concrete and modular construction to reduce project timelines and costs, enhancing margins.
• Customer-Centric Approach: Godrej Properties adopts a customer-first mindset, focusing on product quality, timely delivery, and enhanced customer experience through digital platforms and innovations in home design.
  

ACCOUNTING POLICIES & EARNINGS QUALITY

Revenue Recognition:

Godrej Properties follows the Percentage of Completion Method (PoCM) under Ind AS 115 for recognizing revenue from real estate projects. Revenue is recognized when control over a promised service or goods is transferred to the buyer, and performance obligations are satisfied over time.

Impact on Earnings Quality:

• The use of PoCM ensures that earnings reflect actual project progress, providing transparency in financial reporting. This conservative approach avoids aggressive revenue recognition and improves the predictability of earnings.

Expense Recognition:

• Cost Allocation: Project costs are allocated based on the stage of completion, ensuring an accurate match between recognized revenue and related costs. This includes costs related to land acquisition, construction, and other project expenses.
• Interest Capitalization: Borrowing costs directly attributable to project development are capitalized under Ind AS 23. This reduces profit volatility, aligning the interest expenses with the realization of revenue from projects.

Depreciation & Amortization:

• Tangible fixed assets are depreciated on a Straight-Line Method (SLM) over their useful lives, as prescribed under Schedule II of the Companies Act, 2013. Intangible assets, including goodwill, are amortized over their estimated useful lives.

Impact on Earnings Quality:

• The use of SLM for depreciation and conservative estimates for asset life prevent income smoothing and ensure that the financial statements reflect actual economic depreciation. This enhances earnings reliability and ensures consistency.

Impairment of Assets:

Godrej Properties evaluates assets for impairment annually or when there are indicators of impairment, in accordance with Ind AS 36. Impairment losses are recognized in profit or loss when the carrying amount of an asset exceeds its recoverable amount.

Provisions and Contingencies:

• Provisions are recognized when the company has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources will be required to settle the obligation. This aligns with Ind AS 37.

Impact on Earnings Quality:

• Conservative provisioning ensures that potential liabilities are accounted for, reducing the risk of earnings overstatement. The focus on transparency helps build investor confidence in reported earnings.

Earnings Quality Evaluation:

The accounting policies adopted by Godrej Properties indicate a conservative approach that prioritizes long-term value creation over short-term profit maximization. The use of PoCM for revenue recognition, conservative depreciation practices, and prudent provisioning all contribute to high earnings quality. The company avoids aggressive accounting practices, ensuring that reported earnings are a fair reflection of actual financial performance.

Key Financial Metrics (FY 2023-24)

INCOME STATEMENT AND BALANCE SHEET ANALYSIS:

Common Size Income Statement: Annexure 1 and Balance Sheet: Annexure 2

Income Statement – Key Takeaways:

1. Cost of Materials Consumed is a significant portion of the total revenue, exceeding 200% in both years due to construction and development costs, indicating that project development costs are a major expense.
2. Other Income (which could include interest, investments, or one-off gains) forms a substantial percentage of total revenue (42.79% in 2024 vs. 34.92% in 2023).
3. Other Expenses (including overheads) also take up a large portion of revenue, exceeding 100%, indicating a high level of operational costs beyond direct material consumption.

Balance Sheet – Key Insights:

1. Inventories represent the largest portion of total assets, making up 63.18% of total assets in FY 2024 (up from 52.24% in FY 2023). This suggests that the company is investing heavily in ongoing projects and developments.
2. Other Current Assets (likely including advances, deposits, etc.) make up 22.36% of total assets in FY 2024, showing a consistent portion compared to FY 2023 (23.24%).
3. Total Equity has decreased as a percentage of total assets from 40.18% in 2023 to 28.83% in 2024, likely due to increased borrowings and current liabilities to fund growth.
4. Current Borrowings make up 22.38% of total assets in FY 2024, showing an increase from 27.74% in FY 2023, indicating a heavier reliance on short-term debt for project funding.

Trend and Growth Analysis:

• Revenue Growth: There was a 34.8% increase in revenue from operations from ₹2,252.26 crore in 2023 to ₹3,035.62 crore in 2024.
• Inventories: Saw a growth of 86.8%, which suggests an increase in project development activity.
• Profit Before Tax: Slight growth from ₹795.27 crore (2023) to ₹999.99 crore (2024), indicating a moderate increase in profitability​.
• Current Liabilities: Increased from ₹13,786.16 crore to ₹22,731.94 crore, a 64.8% rise due to higher borrowings and payables​​.

Comparison of Cash Flow from Operations and Net Income:

• Net Cash Flows from Operating Activities in 2024: Negative ₹179.51 crore vs. negative ₹1,842.46 crore in 2023. This negative cash flow indicates significant changes in working capital despite positive profit​.
• Net Profit in 2024: ₹747.06 crore (Consolidated) vs. ₹620.60 crore in 2023​.
• Although profitability increased, operational cash flow remained negative, primarily driven by changes in working capital and increased inventory​​.

 Analysis of Major Line Items and Their Movements:

• Inventory: A significant increase of 86.8% is noted, indicating potential ongoing or upcoming large-scale projects​.
• Borrowings: Increase in short-term borrowings from ₹6,411.75 crore to ₹7,996.46 crore, indicating reliance on debt for project funding​​.
• Trade Receivables: Decreased from ₹359.38 crore (2023) to ₹309.60 crore (2024), which could indicate better collections​.

RATIO ANALYSIS

(Mar 2023 – Mar 2024)

1. Gross Profit Margin (Profitability)

Gross Profit Margin = Gross Profit / Total Revenue × 100

For Godrej properties:

Gross Profit Margin= 1,227.59 / 3,035.62×100 = 40.43%

For DLF:

Gross Profit Margin= 3633.24 / 6427×100 = 56.53%

DLF has a higher gross profit margin, exhibiting better cost management than Godrej properties.

2. Return on Assets (Profitability)

ROA = Net Income / Total Assets × 100

For Godrej properties:

ROA= 752.27 / 35,734.86 × 100 = 2.10%

For DLF:

ROA= 2,727.09 / 60,262.39 ×100 = 4.52%

Godrej Properties has a lower ROA, exhibiting less optimal use of its assets as compared to its competitor, DLF. 

3. Current Ratio (Liquidity)

Current Ratio = Current Assets / Current Liabilities

For Godrej properties:

Current Ratio = 32,450.15 / 22,731.94 = 1.427

For DLF:

Current Ratio = 32,081.39 / 14,136.61 = 2.269

Godrej Properties has a current ratio above 1, exhibiting decent liquidity. DLF is doing better in that respect.

4. Quick Ratio (Liquidity)

Quick Ratio = (Current Assets – Inventory) / Current Liabilities

For Godrej properties:

Quick Ratio = 9885.53 / 22,731.94 = 0.434

For DLF:

Quick Ratio = 10,927.26 / 14,136.61 = 0.772

Based on both quick ratio and current ratio, one can say that the liquidity position of DLF is better than Godrej Properties.

5. Debt-to-Equity Ratio (Leverage)

Debt-to-Equity Ratio = Total Debt / Total Equity​

For Godrej properties:

Debt-to-Equity Ratio = 2,660 / 9,992.51 = 0.2661

For DLF:

Debt-to-Equity Ratio = 4,833.87 / 39,430.81 = 0.122

Godrej Properties has a higher Debt-to-equity ratio, exhibiting that it is more heavily financed by debt as compared to its competitor DLF. 

6. Inventory Turnover Ratio (Efficiency)

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory

For Godrej properties:

Inventory Turnover Ratio = 1,808.03 / 18,080 = 0.10

For DLF:

Inventory Turnover Ratio = 2,793.76 / 20,244.63 = 0.138

The Inventory Turnover Ratio of DLF is a little bit higher than Godrej Properties which indicates better inventory management of DLF as compared to Godrej Properties.

DuPont Analysis

1. Net Profit Margin (Profitability)

Net Profit Margin=Net Profit / Total Revenue × 100

For FY 2024:

Net Profit Margin= 747.06 / 3,035.62×100 = 24.61%

For FY 2023:

Net Profit Margin= 620.60 / 2,252.26×100 = 27.55%

2. Asset Efficiency (Total Asset Turnover)

Total Asset Turnover= Total Revenue / Total Assets

For FY 2024:

Total Asset Turnover= 3,035.62 / 35,734.86 = 0.085 (or 8.5%)

For FY 2023:

Total Asset Turnover= 2,252.26 / 23,105.30 = 0.097 (or 9.7%)

3. Financial Leverage (Equity Multiplier)

Equity Multiplier= Total Assets / Total Equity​

For FY 2024:

Equity Multiplier= 35,734.86 / 10,301.44 = 3.47

For FY 2023:

Equity Multiplier=23,105.30 / 9,287.15 = 2.49

4. Return on Equity (ROE)

ROE can now be calculated using the three components of the DuPont equation:

ROE= Net Profit Margin × Asset Turnover × Equity Multiplier

For FY 2024:

ROE= 24.61% × 8.5% × 3.47 = 7.25%

For FY 2023:

ROE= 27.55% × 9.7% × 2.49 = 6.65%

Key Observations:

• Net Profit Margin declined slightly from 27.55% to 24.61%, indicating some reduction in profitability for each rupee of revenue.
• Total Asset Turnover decreased from 9.7% to 8.5%, suggesting less efficient use of assets to generate revenue.
• Financial Leverage increased significantly from 2.49 to 3.47, indicating a higher reliance on debt financing in FY 2024.
• Despite a decrease in profitability and asset efficiency, the increase in financial leverage helped maintain the overall ROE at a reasonable level (7.25% in 2024 vs. 6.65% in 2023).

CONCLUSION

Based on the thorough financial analysis of the real estate company, Godrej Properties, it can be concluded that it is in a financially sound position and has a decent penetration in the Indian market. With a focus on eco-friendly developments, innovation and comprehensive expansion plans, Godrej Properties is well-positioned for better future growth. However, the comparison of financial ratios indicate that it has to make improvements in multiple aspects to compete better with its competitors like DLF. 

ANNEXURES

Annexure 1: Income Statement of Godrej Properties – 

Annexure 2: Balance Sheet of Godrej Properties – 

Annexure 3: Cash Flow Statement of Godrej Properties – 

Check Other Related Samples:

• Finance Assignment Help: Investment Analysis, Ratio, and Diversification
• Investing in International Markets | Finance Assignment Solutions
• Milton Friedman’s Shareholder Theory on Corporate Social Responsibility: A Critical Analysis

Need assistance with your finance assignment? Contact our experts today!