Orbit Corp:2Q disappoints, but Mandwah took off well: JM Financial

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2Q disappoints, but Mandwah took off well


 Pace of execution, financials below expectations: Orbit’s 2QFY11 financials
were below expectations; sales, EBITDA and net profit declined 31-36% to
`977mn, `303mn and `160mn respectively (down 18%, 21% and 20% QoQ).
Lower revenue booking this quarter was also partly on account of an
elongated monsoon, which affected construction activities across projects.
EBITDA margin was maintained at more or less the same level of 31-32% –
YoY and QoQ.


 Pre-sales near all-time quarterly high, Mandwah project took off well: a)
Orbit booked fresh sales of c.157,917sq ft this quarter (1Q: 54,092sq ft,
2QFY10: 62,650sq ft) including 102,800sq ft at Mandwah, which was sold at
an average price of of `8,500/sq ft – above expectation, b) Realisation from
Napean Sea Road remained unchanged QoQ at c.`55,000/sq ft based on sales
made during the quarter. Realisation at Gamdevi were c.14% higher vs1Q,
Lower Parel, Andheri realisations increased 8%/4% respectively, c)
Outstanding order book (sales made but revenue recognition pending)
increased to `8.5bn as at Sept’10 (vs `7.1bn at Jun’10) mainly on account of
Mandwah (sales value: `875mn), d) Orbit Enclave at Nana Chowk was also
launched during the quarter: 23,000 sq ft (47% sold). Of the 1Q launches,
36% of Orbit Ocean Parque (NS Road - total area: 34,000sq ft) and 54% of
Oribit Laburnum (Gamdevi – 50,000sq ft) have been sold.
 Some changes in project portfolio: a) Orbit sold one of the Andheri land
parcels that it had acquired in FY10 (development potential c.0.25mn). There
was no material gain/loss on this transaction, b) Slum rehabilitation activities
at its Santacruz site have commenced; management is contemplating a
phased launch of the same in 1HCY11.
 Positive on Orbit’s business model; Sept’11 TP of `164: We roll forward our
NAV to Sept’11, revise TP to `164. We have adjusted financials downwards to
reflect slower than expected construction progress and collections. Stock
triggers, in our view, are: a) Cashflow visibility from Mandwah sales, b)
Increased focus on Lalbaug cluster re-development (17 out of total 23
buildings already acquired), c) Successful closure of the Kilachand acquisition
(c.0.5mn sq ft on Napean Sea Road: not built into our valuation model)