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2QFY12F results- Revenue above estimates; maintain BUY
•
Earnings vs. our Forecast:
ABOVE
Likely Impact:
Oberoi Realty 2QFY12 PAT of INR 1,114 mn (+17%y-y & +5%q-q) was largely in line with our expectations but revenue came in ahead of our estimates. This deviation in revenue was principally on account of completion of its Oberoi Splendor project during the quarter and better-than-expected construction progress at its residential projects during the monsoon season. Overall residential sales dropped q-q from INR 2.6bn to INR 2.3bn as buyers turned price sensitive, while performance of investment properties remained steady. We expect a neutral reaction to these set of numbers. Maintain BUY.
· 2QFY12 operating revenue of INR 2,226 mn (+31%y-y and +38%q-q) came in ahead of our expectation of INR 1,780 mn which was owing to completion of its Oberoi Splendor project (approx. 1.3mn sq ft) during the quarter and better-than-expected construction progress at its residential projects during the monsoon season. However, overall sales momentum at its ongoing residential projects was in line with our expectation as the company achieved sales of INR 2,319 mn (vs. INR 2,619 mn in 1QFY12), with project Esquire continuing to drive a large chunk of sales.
· In terms of pricing, overall ASP achieved across all its ongoing projects rose 3% q-q from INR 12,123 psf to INR 12,467 psf. But on an individual project level, ASP achieved was lower between 1-11% q-q, implying buyers have turned price sensitive and are picking up lower-priced units, in our view.
· The performance of investment properties remained steady q-q, as Oberoi Mall continues to see a high occupancy level of 94% in 2QFY12 (vs. 94% in 1QFY12, and 90% in 4QFY11). The occupancy at Commerz I also remained flat q-q at 76% in 2QFY12 vs 76% in 1QFY12 and. 77% in 4QFY11, although it was expected to go up as the company had signed a LOI with a tenant in the previous quarter, the benefit from which was expected to flow from 2QFY12.
· Overall EBITDA margin of 52% (-7%y-y & -4%q-q) was lower-than-our expectation of 56% but this difference was attributable to a larger contribution coming from the development projects during the quarter, which have lower margins when compared to margin on investment properties (approximately 95%).
· 2QFY12 EBITDA of INR 1,155 mn (+15%y-y and 28%q-q) was 16% ahead of our expectation of INR 996mn. However, this better-than expected EBITDA was slightly offset by lower other income (INR 343 mn vs expected INR 426 mn), that resulted in PAT (INR 1,114 mn, +17%y-y & 5%q-q) coming in only 6% ahead of our expectation.
· During this quarter, in September the company acquired ICICI venture’s 50% stake in a Worli residential plot. At the time of the announcement, the company did not disclose the price at which the stake was bought but it was reported in the Economic Times (29 September 2011 - Oberoi Group in talks to buy 50% in south Mumbai project held by ICICI Venture) that the company was expected to pay INR 3.0 bn. The price quoted in the Economic Times appears more or less in line with our estimate of INR 3.15bn based on 2QFY12 accounts. We have estimated that the company will be able to generate an IRR of around 36% on this deal, if all goes as per plan. Please see our note ICICI Venture deal: NAV accretive; achievable IRR ~36%, CLICK HERE for more details.
On the balance sheet front, the cash (including investment in mutual funds) available with the company fell from INR 15.6bn (in 1QFY12) to INR 13.5bn (2QFY12) on account of payment made towards Worli residential plot. The company has been looking to deploy cash towards land acquisition and according to a report in the Economic Times (dated 30 September 2011 - HUL shortlists 6 bidders including Gautam Adani, Oberoi Realty and Peninsula Land for Worli sea-facing plot) Oberoi Realty is among the six shortlisted bidders for Hindustan Unilever sea facing property in Worli. The property is expected to be sold for INR 4.0bn according to the news report.
· Overall, we expect a neutral reaction to these set of results. We maintain a BUY on the stock as it is available at a 21% discount to our NAV of INR 284 per share.
Valuation Methodology and Investment Risks: Valuation Methodology and Investment Risks: Valuation methodology: We used net asset value methodology to arrive at our NAV estimate of INR 275 per share. We estimate additional value accretion of INR 8 per share to arrive at our target price of INR 284 per share. We don’t ascribe any discount to our target NAV of INR 284 per share due to high level of transparency and corporate governance and strong balance sheet. Investment risks: 1) Oberoi Realty is largely a Mumbai-based developer; hence any slowdown in sales volume or correction in home prices / correction in commercial rents due to a worsening macroeconomic scenario would have an impact on our NAV estimates. 2) Given Worli and Sangman City projects, which contribute nearly 16% to our GAV estimate, are being executed with JV partners, any problems arising from JV partners owing to a chequered history could lead to a stalling of these projects. 3) Inability to deploy cash in value-accretive land acquisition could have a significant impact on our estimates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
2QFY12F results- Revenue above estimates; maintain BUY
•
Earnings vs. our Forecast:
ABOVE
Likely Impact:
Oberoi Realty 2QFY12 PAT of INR 1,114 mn (+17%y-y & +5%q-q) was largely in line with our expectations but revenue came in ahead of our estimates. This deviation in revenue was principally on account of completion of its Oberoi Splendor project during the quarter and better-than-expected construction progress at its residential projects during the monsoon season. Overall residential sales dropped q-q from INR 2.6bn to INR 2.3bn as buyers turned price sensitive, while performance of investment properties remained steady. We expect a neutral reaction to these set of numbers. Maintain BUY.
· 2QFY12 operating revenue of INR 2,226 mn (+31%y-y and +38%q-q) came in ahead of our expectation of INR 1,780 mn which was owing to completion of its Oberoi Splendor project (approx. 1.3mn sq ft) during the quarter and better-than-expected construction progress at its residential projects during the monsoon season. However, overall sales momentum at its ongoing residential projects was in line with our expectation as the company achieved sales of INR 2,319 mn (vs. INR 2,619 mn in 1QFY12), with project Esquire continuing to drive a large chunk of sales.
· In terms of pricing, overall ASP achieved across all its ongoing projects rose 3% q-q from INR 12,123 psf to INR 12,467 psf. But on an individual project level, ASP achieved was lower between 1-11% q-q, implying buyers have turned price sensitive and are picking up lower-priced units, in our view.
· The performance of investment properties remained steady q-q, as Oberoi Mall continues to see a high occupancy level of 94% in 2QFY12 (vs. 94% in 1QFY12, and 90% in 4QFY11). The occupancy at Commerz I also remained flat q-q at 76% in 2QFY12 vs 76% in 1QFY12 and. 77% in 4QFY11, although it was expected to go up as the company had signed a LOI with a tenant in the previous quarter, the benefit from which was expected to flow from 2QFY12.
· Overall EBITDA margin of 52% (-7%y-y & -4%q-q) was lower-than-our expectation of 56% but this difference was attributable to a larger contribution coming from the development projects during the quarter, which have lower margins when compared to margin on investment properties (approximately 95%).
· 2QFY12 EBITDA of INR 1,155 mn (+15%y-y and 28%q-q) was 16% ahead of our expectation of INR 996mn. However, this better-than expected EBITDA was slightly offset by lower other income (INR 343 mn vs expected INR 426 mn), that resulted in PAT (INR 1,114 mn, +17%y-y & 5%q-q) coming in only 6% ahead of our expectation.
· During this quarter, in September the company acquired ICICI venture’s 50% stake in a Worli residential plot. At the time of the announcement, the company did not disclose the price at which the stake was bought but it was reported in the Economic Times (29 September 2011 - Oberoi Group in talks to buy 50% in south Mumbai project held by ICICI Venture) that the company was expected to pay INR 3.0 bn. The price quoted in the Economic Times appears more or less in line with our estimate of INR 3.15bn based on 2QFY12 accounts. We have estimated that the company will be able to generate an IRR of around 36% on this deal, if all goes as per plan. Please see our note ICICI Venture deal: NAV accretive; achievable IRR ~36%, CLICK HERE for more details.
On the balance sheet front, the cash (including investment in mutual funds) available with the company fell from INR 15.6bn (in 1QFY12) to INR 13.5bn (2QFY12) on account of payment made towards Worli residential plot. The company has been looking to deploy cash towards land acquisition and according to a report in the Economic Times (dated 30 September 2011 - HUL shortlists 6 bidders including Gautam Adani, Oberoi Realty and Peninsula Land for Worli sea-facing plot) Oberoi Realty is among the six shortlisted bidders for Hindustan Unilever sea facing property in Worli. The property is expected to be sold for INR 4.0bn according to the news report.
· Overall, we expect a neutral reaction to these set of results. We maintain a BUY on the stock as it is available at a 21% discount to our NAV of INR 284 per share.
Valuation Methodology and Investment Risks: Valuation Methodology and Investment Risks: Valuation methodology: We used net asset value methodology to arrive at our NAV estimate of INR 275 per share. We estimate additional value accretion of INR 8 per share to arrive at our target price of INR 284 per share. We don’t ascribe any discount to our target NAV of INR 284 per share due to high level of transparency and corporate governance and strong balance sheet. Investment risks: 1) Oberoi Realty is largely a Mumbai-based developer; hence any slowdown in sales volume or correction in home prices / correction in commercial rents due to a worsening macroeconomic scenario would have an impact on our NAV estimates. 2) Given Worli and Sangman City projects, which contribute nearly 16% to our GAV estimate, are being executed with JV partners, any problems arising from JV partners owing to a chequered history could lead to a stalling of these projects. 3) Inability to deploy cash in value-accretive land acquisition could have a significant impact on our estimates.
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