2 Profit is not cash
A company can report a healthy profit and still generate little cash. It can also generate much more cash than the profit reported for the year.
This matters particularly in real estate. Property development is a long-cycle business.
Land, construction, customer advances, project expenditure and collections happen at different points in time.
So, how much of a company's reported profit is actually turning into cash?
One simple way to look at this is the Cash Conversion Ratio or CCR.
CCR = Cash Flow from Operations (CFO) / Net Profit (NP)
If a company reports Rs 100 crore of net profit and generates Rs 100 crore of operating cash flow, its CCR is 100 per cent.
3 Why one year's CCR can mislead
In a business with uneven cash flows, a single year's CCR can be highly misleading.
This is particularly true for property developers. A large customer collection, a land or project payment or a change in working capital can have a major effect on CFO in one year.
The eight companies in this exercise make the point very clearly.
For example, Anant Raj's annual CCRs over the seven years ranged from -1,667 per cent to 798 per cent.
Sobha's ranged from 104 per cent to 1,320 per cent.
Godrej Properties had negative CCRs in most of the years despite reporting profits.
These numbers are difficult to interpret if each year is viewed in isolation.
Note: Please refer Appendix below for CCR data for all seven years for the eight companies analysed.
4 A better way to look at it
I therefore use a 3-year rolling cumulative CCR.
The calculation is simple:
3-year rolling cumulative CCR = cumulative CFO for three years / cumulative net profit for three years
The periods overlap. So, the latest figure covers FY 2023-24 to FY 2025-26, the previous figure covers FY 2022-23 to FY 2024-25, and so on.
This does not remove the volatility of the business. It reduces the effect of short-term timing differences.
More importantly, it helps answer a more useful question:
Are reported profits converting into operating cash over a reasonable period?
Note: Please refer Appendix below for CCR data for all seven years and 3-year rolling cumulative CCR for the eight companies analysed.
5 What the eight companies show
The latest 3-year rolling CCRs are quite revealing.
DLF: 123%
Prestige Estates: 131%
Anant Raj: -17%
Sobha: 379%
Godrej Properties: -124%
Raymond Realty: -492%
Mahindra Lifespaces: -382%
Ganesh Housing: 92%
The latest 3-year rolling CCRs show a striking range, from 379 per cent for Sobha to -492 per cent for Raymond Realty.
DLF and Prestige Estates have remained above 100 per cent across all five rolling periods. Ganesh Housing is close to 100 per cent in the latest period.
At the other end, Godrej Properties, Mahindra Lifespaces and Raymond Realty have negative latest 3-year CCRs.
Interestingly, Godrje Properties reports yearly negative cash flows for the past seven years continuously (more on this later).
Anant Raj has also seen a sharp deterioration, from 220 per cent five years ago to -17 per cent now.
The differences are striking enough to warrant a closer look.
The rolling numbers therefore show more than just the latest year's performance. They show the direction and persistence of cash conversion.
However, a negative CCR does not always mean trouble. It can mean a company is burning cash because of poor collections. Or it can mean a company is expanding fast, buying land and building ahead of future bookings, as is the case with Godrej Properties.
Several real estate / construction companies tend to have negative operating cash flows in a single year. Hence, a deeper analysis is needed, without relying on a single metric like CCR to make informed decisions.
Why Sobha Ltd is an outlier?
As of 31Mar2026, the highest 3-year rolling cumulative CCR (of the eight companies analysed) is from Sobha at 379 per cent. This is not simply a result of one exceptional year.
Sobha follows a vertically integrated model, with significant in-house construction and manufacturing capabilities -- not depending on landowner tie-ups.
Backward integration: It largely develops projects directly, giving it greater control over land, construction and execution. It builds with its own contracting arm; and makes its own glazing and concrete products.
Despite lumpy real estate cash flows, it has generated positive CFO in every year of the period analysed.
Cash collected from buyers and cash spent on construction move together.
Result: This helps explain why it has consistently generated positive CFO every year despite the inherent lumpiness of real estate cash flows.
Note: Contrast Sobha's business model with that of Godrej Properties given below.
6 Why is Godrej Properties’ CFO persistently negative?
The cash flow statement provides an important clue. A major factor is the substantial cash tied up in inventory.
The inventory cash outflow has risen sharply, from Rs 2,205 crore in FY 2020-21 to Rs 7,812 crore in FY 2024-25 and Rs 14,932 crore in FY 2025-26.
Other working-capital items have provided a large offset, but not enough to prevent negative CFO.
Godrej Properties keeps adding new projects and land parcels. Money goes out to build up work-in-progress, ahead of sales.
This is consistent with the nature of a rapidly expanding property developer. Cash can be committed to projects well before the associated revenue and profit are recognised.
Under Ind AS 115, the timing of revenue recognition can differ from the timing of cash collections and project expenditure.
Real estate also has a peculiar cash-flow classification:
Land and development expenditure intended for sale to customers are generally treated as inventory.
Therefore, cash spent building the development pipeline appears in operating cash flow.
This can make a property developer's CFO look unusually weak while it is actually investing heavily in future projects.
For many other businesses, property and land purchases are part of cash flow investing (CFI).
For example, for a power generation company, land, plant and machinery bought for its own long-term use are generally capital assets. The cash outflow therefore appears under investing activities.
A note on business model of Godrej Properties:
Godrej Properties relies heavily on joint development and development management arrangements with landowners, sharing revenue or area with landowners instead of buying land outright (but, its 2025-26 annual report says it is now buying land outright opportunistically as part of a "strategic pivot").
It lends heavily to its own project SPVs and joint ventures (Rs 11,784 crore as per Balance Sheet as of 31Mar2026) to fund land and construction.
The company has been adding projects very fast (Rs 42,100 crore of new business pipiline in FY 2025-26 alone) pushed inventory up by Rs 14,932 crore in FY 2025-26 (cash flow figure) and this outpaced customer collections.
Result: profit is booked on construction progress, but operating cash flow stays deeply negative due to the pace of expansion.
7 Why can real estate have such unusual CCRs?
Real estate has an added complication. Under Ind AS 115, revenue recognition depends on how and when the performance obligation is satisfied.
Therefore, the timing of revenue and profit recognition need not match the timing of cash collections and project expenditure.
Cash can be received before the related profit appears in the accounts. Customers may make advances or progress-linked payments while a project is still being developed.
Conversely, a developer can report accounting profit while cash is being absorbed by projects, inventory and working capital.
This can create a large gap between reported profit and operating cash flow. That is one reason cash conversion can look unusually high or low in a property developer.
8 What I find most interesting
The eight companies fall into very different patterns.
DLF and Prestige Estates show strong and relatively consistent cash conversion.
Sobha has generated exceptionally high operating cash relative to reported profit.
Ganesh Housing is close to normalisation, with the latest 3-year CCR at 92 per cent.
Anant Raj shows a clear deterioration in cash conversion over the five rolling periods.
Godrej Properties, Raymond Realty and Mahindra Lifespaces show a very different picture. All three have negative latest 3-year rolling CCRs, with the latter two particularly extreme.
These differences would be difficult to appreciate from the latest year's profit numbers alone.
9 Cash is ultimately what matters
This analysis is not intended to replace revenue, earnings growth or other measures used to assess a real estate company.
It is a different lens.
For a property developer, reported profit tells us about accounting performance. Cash flow tells us what happened to the cash generated or consumed by the business.
Looking at both, over several years, can provide a more complete picture.
For investors, the key question is therefore not simply:
"How much profit did the developer report?"
It is:
"Over a reasonable period, how much of that profit is actually turning into cash?"
That is what the 3-year rolling cumulative CCR is designed to show.
Don't miss the Appendix delineating details of data on year-wise CCR and cumulative CCR.
Note: This is an educational analysis based on reported financial data. CCR is only a single metric and should not be used on its own to judge the quality or value of a real estate company. Safe to assume the author has a vested interest in Indian financial markets.
