Prabhudhas Liladhar: Oberoi Realty - IPO Note - 'Clean Deal' - Subscribe

Oberoi Realty               Subscribe                    Price Band: Rs253 to 260

IPO Note - Clean Deal

n  About the company: Oberoi Realty is a Mumbai focused company, with current land bank of 20.25m sq.ft which it is likely to monetize over the next 5-6 years. As of June 30, 2010, the company, along with the Promoter and Promoter Group, has completed 33 projects, covering approximately 5m sq.ft of saleable area spread across Mumbai.

n  Premium, destination developments: Oberoi Realty has premium developments and focuses on destination development; this includes a mix of residential, commercial, retail, hospitality and social infrastructure. Of its current land bank, the company’s focus is on Goregaon, Andheri (East), Mulund and Worli which enables it to have a strong hold over these areas and customise products as per the needs of that particular area.

n  Mix of sale and lease model: Oberoi Realty adopts a sale model for its residential projects and a lease model for its commercial and hospitality projects, giving it a good mix of monetization of land, along with stable annuity income. The company has leased out space of 0.97m sq.ft on its books.

n  Zero-debt position: Oberoi Realty has an extremely strong balance sheet position as it has no debt on its books. Networth stands at Rs19.4bn, while the cash on its books in March 2010 stands at Rs3.6bn. Post the issue, networth shall be ~Rs30bn which could enable it to raise debt to the tune of Rs15bn, considering a DER of 0.5. In addition to this, the company will raise Rs10bn through the offering along with the cash of Rs3.6bn on its books. On the whole, the company will have access to ~Rs28-30bn. Of the IPO proceeds, Rs7.5bn are to be used for construction activities and the balance ~Rs20bn can be used as growth capital to increase its land bank.

n  Financials & Valuations: Company revenues have grown from Rs0.8bn in FY06 to Rs7.8bn in FY10, with strong EBITDA margins ranging between 44-60%. In the last three fiscals, profits have been above Rs2.5bn levels, with FY10 at Rs4.5bn.

As per our rough-cut valuations, the company’s post-money NAV stands at Rs281/share. At the lower end of the band, the issue is priced at 10% discount to the NAV, while the upper end is at 7.5% discount. We recommend ‘Subscribe’