Edelweiss: Oberoi Realty (INR 253-260, Subscribe)

Oberoi Realty (INR 253-260, Subscribe)

Oberoi Realty (Oberoi) is tapping the capital market to raise ~INR 10.0-10.3 bn through an IPO in the price range of INR 253–260 per share, giving post-money valuation of INR 83-85 bn. As per the issue terms, 39.6 mn shares will be issued, resulting in dilution of 12%.

n  Strong presence in Mumbai, the crème of Indian real estate

Oberoi is established in Mumbai, with over 90% of its land bank in the suburbs and city. It is currently developing ~20.3 msf across 24 projects. Some of Oberoi’s key projects in the city are Oberoi Garden City (11.2 msf) in Goregaon, Oberoi Splendor (3.1 msf) inAndheri, Oasis (2.1 msf) in Worli and Oberoi Exotica (3.2 msf) in Mulund.

n  Experienced promoters with track record of timely execution

The company’s promoters are active in the real estate industry since 1983. As on June 30, 2010, the promoters and promoter group have collectively developed 33 projects covering ~5 msf of saleable area. Completed projects include landmark projects such as Oberoi Springs and Oberoi Sky Heights in Andheri (West); and Oberoi Woods, Oberoi Mall, and The Westin Hotel in Goregaon (East).

n  Financially strong with debt free balance sheet

Oberoi has kept its balance sheet in check and is focused on maintaining a lean land bank. Its construction costs are largely funded through internal accruals in the form of pre-sales and rental income from marquee properties. As on June 30, 2010, Oberoi has a debt free balance sheet with net cash of ~INR 3.7 bn.

n  Valuation: Fairly priced; ‘SUBSCRIBE’ with long-term view

We have factored in Oberoi’s cash flow from ~20 msf over 8-9 years and discounted it with WACC of 14%. Our NAV for the company stands at INR 91.7 bn or INR 279/share at the lower price band. Residential projects of ~12.3 msf account for ~51% of the company’s GAV, commercial/retail projects of 5.4 msf (including rent-yielding properties) 43% of GAV, with the balance accounted for by hospitality/social infrastructure projects. At the lower price band, the stock is available at 9% discount to NAV. We believe that the issue is fairly priced, taking into account the company’s current land bank. However, possible redeployment of cash for new land acquisitions may offer upsides to the NAV. We, therefore, recommend ‘SUBSCRIBE’ to the IPO at the lower price band, keeping in mind the long-term prospects.