Oberoi Realty ): Preferred India Property Play :: Morgan Stanley Research,

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Oberoi Realty (OEBO.BO): Preferred India Property Play

What’s Priced in? What’s the Market Missing?
 The market expects Oberoi to be negatively affected by the ongoing
slowdown in the Mumbai property market caused by adverse macro
factors and sticky high property prices. We believe the slowdown will
be short term, since the mid- to longer-term demand drivers (GDP
growth, employment creation, salary growth) are intact.
 The market we believe is discounting the Garden City and Splendor
projects while Oasis (Worli) and Exotica (Mulund) do not appear fully
priced in. Successful launches of Oasis and Exotica in the next few
months should allow better discounting of these two projects.
 Oberoi has a much stronger balance sheet (Rs14.6bn net cash, zero
debt) and cash flow situation compared to its peers in the Mumbai
market. It is well positioned for new land/project acquisition which are
now happening frequently (NTC Land auctions, Raymond Land Sale,
HUL Worli property sale). The stock we believe is not pricing this in
(28% discount to March 2011e NAV compared to 31% for our
coverage universe).
 Oberoi being a premium developer in the land scarce Mumbai market
is an ideal choice for JDA partner. This brand upside is missed by the
market, we believe.
Near-term Catalysts
 Launch of Exotica (upon regulatory clearances), Oasis and Exquisite
III projects
 Pre-leasing of Commerz II – Phase 1
 Pre-sales ramp-up of Exquisite, Esquire and Splendor Grande
 Outcome of HUL Worli land sale and Raymond Thane land sale
 10-15% price correction in Mumbai residential market
 Peaking out of interest rate

Bear case assumes tough Mumbai residential market

conditions (Rs80/share), stagnant commercial market

(Rs28/share), idle cash (Rs29/share) and loss of

Sangamwadi project (Rs8/share)

13x F12e

EPS

Bear

Rs225

Includes March 2011e NAV of Rs337 with base case at

10% premium to this forward NAV. Valuation assumes 15%

discount rate, 5% cost-price inflation and 9.5% cap rate

21x F12e

EPS

Base

Rs370

Bull case assumes boom in physical property markets

(Rs36/share), new land acquisition (Rs26/share), pricing

upside for commercial property (Rs19/share) and Juhu

hotel materialises (Rs18/share)

27x F12e

EPS

Bull

Rs469

Derived from Base Case

Price Target

Rs370

Oberoi Realty

Methodology: We value Oberoi using a net asset value methodology, wherein we calculate the value of the real estate

business in two parts – the current land bank and surplus cash (land acquisition expectations). We arrive at our price target

of Rs370 (10% premium to our March 2011 NAV estimate of Rs110.5bn; Rs337/share) by adding the value of saleable

projects (Rs53.1bn), lease assets (Rs25.8bn), hospitality assets (Rs4.4bn), use of surplus cash (Rs9.6bn), and F2011

estimated net debt (Rs17.5bn cash surplus).

Key Risks: Unable to find value-enhancing land bank in Mumbai; planned projects (Juhu, Sangamcity) currently facing

hurdles do not materialize; sharp slowdown in Mumbai property market; enhanced regulatory risks; inability to maintain

premium pricing over peers.