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TP : Rs272
Investment Rationale
§ Quality Mumbai-based land bank, strong repute of quality and execution and zero leveraged balance sheet
makes Oberoi Realty (OBRE) less vulnerable in the current macro environment
§ Slowdown in real estate sector will provide attractive opportunities to OBRE for new land acquisition. The
acquisition would be key trigger for stock re-rating, as it would lead to higher yield of 20%+ on growing idle cash
reserves, vis-a-vis current yields of 6% - 7%
§ Factoring in risks pertaining to flat absorption rate, execution timeline extension, lower rentals for leasable assets
and zero price escalation across ongoing projects, our target NAV works out to Rs 272; 21% upside from CMP
§ Annual net cashflows from rentals of Rs 1.0bn from Oberoi Mall and Commerz 1 will substantially meet the
development cost of the ongoing commercial projects, leading to lower erosion of the current cash reserves
Valuations
§ We have initiated coverage with a SOTP NAV of Rs 272 with leased assets, operational hotel asset and cash
accounting for 37% of the NAV
§ 58% NAV concentrated in the Goregaon (E) projects, where as Andheri (E), Mulund (W) and Worli account for 6-
7% each
§ Expect lower ROEs of 14.1% FY12E owing to increase in CWIP and working capital, and with new launches and
higher sales absorption in FY13E the same is seen at 17.1%
§ Cashflows are discounted at 13.7% where as leasaeable assets are valued at 10% capitalisation rate. To
account for business risk in commercial assets, we have further discounted their NAVs by 15%.
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