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Oberoi Realty (OBER)
Property
Good quarter, best-placed in challenging times. Oberoi reported revenues and net
profit 14% and 8% above our expectation. We find Oberoi better-placed given its
debt-free status and lower risk of regulatory-led delays but we reduce sales estimates by
14% for FY2012E and FY2013E as we account for a period of slower sales. We
reiterate our BUY recommendation with a reduced target price of Rs305/share on
higher cost of capital assumption.
3QFY11 marginally above expectation on higher revenue recognition in Exquisite I
Oberoi reported revenues of Rs4 bn (+89% yoy, +134% qoq) versus our expectation of Rs3.5 bn.
Revenues were driven by (1) Exquisite I (Goregaon E) which crossed the 20% recognition
threshold in 3QFY11 contributed over 60% of 3QFY11 and (2) continued execution in Oberoi
Splendor (revenue recognition moved to 86% from 78% as of end-2QFY11). Rental revenues (mall
+ office space in Goregaon remained stable while Westin (hospitality) occupancy jumped to 62%
in 3QFY11. EBITDA margins expanded 270 bps qoq but lower than our expected 480 bps. Net
Profit at Rs2.1 bn (+57% yoy, +115% qoq) is 8% above our expected Rs1.9 bn.
Market outlook softening at the margin; Oberoi remains relatively better-placed
Oberoi sold 0.15 mn sq. ft of residential real estate in 3QFY11. We believe sales in Splendor and
Exquisite I have remained at best flat qoq versus our expectation of some inventory being sold in
the near-complete Splendor and increasing sales in Exquisite I. We expect lower volumes and flat
pricing for the next few quarters in Mumbai market and believe aggressive volume growth can
only be driven by cutting prices which most developers will resort to only when they have cash
flow pressures. For Oberoi, we have reduced our sales volumes (residential + commercial) to 1.2
mn sq. ft and 1.8 mn sq. ft for FY2011E and FY2012E, respectively (earlier 1.4 mn sq. ft and 2.1
mn sq. ft).
Retain BUY with target price of Rs305/share
We reiterate our BUY recommendation but reduce our target price to Rs305/share (Rs334 earlier)
led by (1) 100 bps increase in our WACC and cap. rate (for rental properties) assumptions and
(2) lower sales volumes assumed for FY2012E and FY2013E which is also reducing our
FY2011E/12E revenues and net profit by 4%/17% and 7%/18%, respectively. We find Oberoi
relatively better-placed in this environment as (1) Oberoi is the only debt-free developer company
operating in the lucrative Mumbai region and could actually take advantage of declining land
prices by adding to its land bank, (2) NAV realization is relatively more front-loaded than peers,
and (3) RoE in the mid-20s is again higher than peers.
Exquisite I revenue recognition drives 3QFY11 reported financials
Revenues from Exquisite I (Goregaon E ) which crossed the 20% recognition threshold in
3QFY11 contributed over 60% of 3QFY11 revenues while continued execution in Oberoi
Splendor (revenue recognition moved to 86% from 78% as of end-2QFY11).
Rentals from Oberoi Mall and Commerz I (office space) are in line with expectation
Westin Mumbai has managed to increase occupancy to 62% versus 38% in 1HFY11 and
also turned firmly EBITDA positive with 3QFY11 EBITDA margin (pro-forma) at 32.3%.
Sales volume lower than expected on subdued market conditions
Oberoi sold 0.15 mn sq. ft of residential real estate in three ongoing projects - Exquisite I
(62,920 sq. ft), Splendor Grande (85,540 sq. ft) and Oberoi Splendor (2,961 sq. ft). We
believe sales in Splendor and Exquisite I have remained at best flat qoq versus our
expectation of some inventory being sold in the near-complete Splendor and increasing sales
in Exquisite I.
Healthy balance sheet remains Oberoi’s key strength
Oberoi has net cash of Rs14,751 mn making it one of the few debt-free developers. With
land prices expected to correct, this provides Oberoi with a tremendous opportunity to
increase its land bank at reasonable cost.
We estimate March 2012E-based NAV of Rs304/share (earlier Rs334/share)
We have increased our WACC to 15% versus 14% earlier given greater volume uncertainty
and higher cost of capital.
We have increased our cap. rate to 11% from 10% earlier.
We delay absorption/sales assumption by (1) factoring in a one-three quarter lag in launches
of the Worli and Mulund projects, (2) assuming lesser sales upfront and a more back-end
loaded sales mix and (3) make minor changes in certain project areas (based on latest
available data).
We reduce earnings and revenues based on slower ramp-up in sales volume
We are reducing our FY2011E/12E revenues and net profit by 4%/17% and 7%/18%,
respectively. We have reduced our sales volumes (residential + commercial) to 1.2 mn sq. ft
and 1.8 mn sq. ft for FY2011E and FY2012E, respectively (earlier 1.4 mn sq. ft and 2.1 mn
sq. ft). This has been led by (1) a more barbell shaped sales assumption, i.e. a larger
proportion will be sold later in the project as we face a flat pricing scenario and Oberoi has
the ability to hold inventory given its debt-free status and (2) a 2-3 quarter delay in project
launches as approvals in Mumbai get delayed to a slower pace of regulatory approvals.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Oberoi Realty (OBER)
Property
Good quarter, best-placed in challenging times. Oberoi reported revenues and net
profit 14% and 8% above our expectation. We find Oberoi better-placed given its
debt-free status and lower risk of regulatory-led delays but we reduce sales estimates by
14% for FY2012E and FY2013E as we account for a period of slower sales. We
reiterate our BUY recommendation with a reduced target price of Rs305/share on
higher cost of capital assumption.
3QFY11 marginally above expectation on higher revenue recognition in Exquisite I
Oberoi reported revenues of Rs4 bn (+89% yoy, +134% qoq) versus our expectation of Rs3.5 bn.
Revenues were driven by (1) Exquisite I (Goregaon E) which crossed the 20% recognition
threshold in 3QFY11 contributed over 60% of 3QFY11 and (2) continued execution in Oberoi
Splendor (revenue recognition moved to 86% from 78% as of end-2QFY11). Rental revenues (mall
+ office space in Goregaon remained stable while Westin (hospitality) occupancy jumped to 62%
in 3QFY11. EBITDA margins expanded 270 bps qoq but lower than our expected 480 bps. Net
Profit at Rs2.1 bn (+57% yoy, +115% qoq) is 8% above our expected Rs1.9 bn.
Market outlook softening at the margin; Oberoi remains relatively better-placed
Oberoi sold 0.15 mn sq. ft of residential real estate in 3QFY11. We believe sales in Splendor and
Exquisite I have remained at best flat qoq versus our expectation of some inventory being sold in
the near-complete Splendor and increasing sales in Exquisite I. We expect lower volumes and flat
pricing for the next few quarters in Mumbai market and believe aggressive volume growth can
only be driven by cutting prices which most developers will resort to only when they have cash
flow pressures. For Oberoi, we have reduced our sales volumes (residential + commercial) to 1.2
mn sq. ft and 1.8 mn sq. ft for FY2011E and FY2012E, respectively (earlier 1.4 mn sq. ft and 2.1
mn sq. ft).
Retain BUY with target price of Rs305/share
We reiterate our BUY recommendation but reduce our target price to Rs305/share (Rs334 earlier)
led by (1) 100 bps increase in our WACC and cap. rate (for rental properties) assumptions and
(2) lower sales volumes assumed for FY2012E and FY2013E which is also reducing our
FY2011E/12E revenues and net profit by 4%/17% and 7%/18%, respectively. We find Oberoi
relatively better-placed in this environment as (1) Oberoi is the only debt-free developer company
operating in the lucrative Mumbai region and could actually take advantage of declining land
prices by adding to its land bank, (2) NAV realization is relatively more front-loaded than peers,
and (3) RoE in the mid-20s is again higher than peers.
Exquisite I revenue recognition drives 3QFY11 reported financials
Revenues from Exquisite I (Goregaon E ) which crossed the 20% recognition threshold in
3QFY11 contributed over 60% of 3QFY11 revenues while continued execution in Oberoi
Splendor (revenue recognition moved to 86% from 78% as of end-2QFY11).
Rentals from Oberoi Mall and Commerz I (office space) are in line with expectation
Westin Mumbai has managed to increase occupancy to 62% versus 38% in 1HFY11 and
also turned firmly EBITDA positive with 3QFY11 EBITDA margin (pro-forma) at 32.3%.
Sales volume lower than expected on subdued market conditions
Oberoi sold 0.15 mn sq. ft of residential real estate in three ongoing projects - Exquisite I
(62,920 sq. ft), Splendor Grande (85,540 sq. ft) and Oberoi Splendor (2,961 sq. ft). We
believe sales in Splendor and Exquisite I have remained at best flat qoq versus our
expectation of some inventory being sold in the near-complete Splendor and increasing sales
in Exquisite I.
Healthy balance sheet remains Oberoi’s key strength
Oberoi has net cash of Rs14,751 mn making it one of the few debt-free developers. With
land prices expected to correct, this provides Oberoi with a tremendous opportunity to
increase its land bank at reasonable cost.
We estimate March 2012E-based NAV of Rs304/share (earlier Rs334/share)
We have increased our WACC to 15% versus 14% earlier given greater volume uncertainty
and higher cost of capital.
We have increased our cap. rate to 11% from 10% earlier.
We delay absorption/sales assumption by (1) factoring in a one-three quarter lag in launches
of the Worli and Mulund projects, (2) assuming lesser sales upfront and a more back-end
loaded sales mix and (3) make minor changes in certain project areas (based on latest
available data).
We reduce earnings and revenues based on slower ramp-up in sales volume
We are reducing our FY2011E/12E revenues and net profit by 4%/17% and 7%/18%,
respectively. We have reduced our sales volumes (residential + commercial) to 1.2 mn sq. ft
and 1.8 mn sq. ft for FY2011E and FY2012E, respectively (earlier 1.4 mn sq. ft and 2.1 mn
sq. ft). This has been led by (1) a more barbell shaped sales assumption, i.e. a larger
proportion will be sold later in the project as we face a flat pricing scenario and Oberoi has
the ability to hold inventory given its debt-free status and (2) a 2-3 quarter delay in project
launches as approvals in Mumbai get delayed to a slower pace of regulatory approvals.
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