Buy Orbit Corporation - Long-term gain, though short-term pain; Anand Rathi

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Orbit Corporation
Long-term gain, though short-term pain; maintain Buy
We cut our NAV to `100 for Mar ’12e from `181 for Sep ’11e and
lower our price target to `80, accounting for the recent business
and policy changes. Sales have been below guidance mainly
owing to lower sales at Mandwa, and construction and
collections being below par. We believe cash collection would
improve in FY12e; maintain Buy.
 Lackluster FY11. As against FY11e sales guidance of 0.55m sqft,
9MFY11 sales stand at only 0.274m sqft, with 4Q unlikely to add
cheer. The guidance miss is mainly due to substantially fewer sales
at Mandwa. Further, with less than 10% cash received from
project launches in FY11, construction and collections were slow.
 FY12 cash generation to be good; but acquisitions to decide
balance-sheet strength. Of the `6.4bn collections expected in
FY12e, ~40% would be from completed projects as against
construction outgo of `2-2.5bn. But, management guidance on
rise in debt ahead indicates plans of big-ticket acquisitions.
 Change in estimates and methodology. In line with changes in
Jan ’11 for our coverage realty companies, we re-value projects
where full payments are awaited. This would alter our valuation
for projects such as Kilachand, Lalbaug and NS Road Block.
 Valuation and risks. Our Mar ’12e NAV and price target are
`100 and `80 respectively. At current market price, the stock
trades at 6.7x Mar ’12e PE. Risks: Political/policy uncertainty
could further delay approvals; further slowdown in sales.


Valuation
In line with changes in Jan ’11 for our coverage realty companies, we
alter value of some projects – a couple of Napean Sea Road projects
and the planned phases at Lalbaug, where full payments are awaited.
This would impact our Sep ’11e NAV by 45%.
Valuation
Our Mar ’12e NAV is `100, and we introduce a 20% discount, arriving at a
price target of `80.


Nearly 50% of Kilachand House, the Napean Sea Road block and Lalbaug
have been acquired and paid for. We have taken the acquisition cost paid
vs. the earlier development schedule.
Mandwa: 130 acres have already been acquired and registered by the
company. Phase 1 launched covers more than 30 acres and 0.9m sqft of
saleable area. This project may be notified under the Township Act, in
which case the saleable area would increase.
For projects other than those announced the amount paid is +`1bn. We
have taken a 20% discount to the amount paid.


In the current state legislative assembly session, mention was made about
an increase in FSI for redevelopment projects. This is positive for the
company and would result in area going up at planned projects.
The state government also introduced at the present ready reckoner rates
stamp duty for transfer of tenancy rights. This would raise costs of
acquisition by ~3-4%.
Risks
 Political and policy uncertainty in the last few months have led to
delayed approvals. Further delays could prove detrimental.
 Slowdown in sales and pricing, more than estimated, would affect our NAV.