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Oberoi Realty Overweight
OEBO.BO, OBER IN
Acquires ICICI Venture's stake in Glaxo Worli project.
Transaction done at market valuations
Acquires 50% stake in Glaxo Worli project - Oberoi Realty has
acquired 50% stake from ICICI Ventures in a prime 4 acre project in
South Mumbai (Worli). While the transaction price has not been
disclosed by the company; it is expected to be Rs3B as per news reports
(Source: Economic Times). ICICI Ventures has been looking to exit the
project as the tenure of ICICI closed ended fund holding the project
comes to closure. Promoters of Oberoi hold the remainder 50% stake.
Transaction done at current market valuations- At acquisition price
of Rs3B, the implied land cost works out to Rs11-12K psf, on our
assumptions. The transaction with the PE player has been done at current
market valuations and hence does not imply any undervaluation in our
view. We do not expect a meaningful value accretion from the project
(Rs3.5/share on our estimate) unless Oberoi is able to achieve higher FSI
(>2). We believe the transaction however would be earnings accretive
over 2-3 years as it should start flowing through the P/L from FY14/15
onwards.
Project details - This project was jointly acquired by promoters of
Oberoi Realty and ICICI Ventures from GlaxoSmithkline for Rs1.08B in
2004. The project had hit a road block due to approval issues with BMC,
which now seem to have been cleared by Supreme Court. However, an
official project launch will take around 9-12 months as per the company.
We estimate Rs3.5/share net value accretion - At acquisition price of
Rs3B, the implied land cost works out to Rs11-12Kpsf (based on FSI of
2), on our assumptions. Assuming construction cost of Rs6K psf, selling
price of Rs27k psf and construction timeline of 5 years, we estimate
gross margin for the project will be around 35% and net value accretion
will be Rs3.5/share. A proposed launch by a local developer in a nearby
location is expected to be at Rs25-30K psf. Please refer to the table
below for details.
Table 1: Worli project economics
Comments
Land Area (acres) 4.1
Land price (Rs M) 3,000 As per Economic Times
Saleable Area (msf) 0.5
Oberoi stake (50%) 0.3 Oberoi will hold 50% acquired from ICICI Ventures; while promoters hold the remaining stake
Land price (Rs psf) 11,528
Construction cost (Rs psf) 6,000 For high end residential project
Total cost (Rs psf) 17,528
Selling price 27,500 Proposed launch by local developer expected at Rs25-30K psf
Margin psf 9,972
Margin (%) 36%
Total Value 2,595
No of year to completion 6 Assuming 5 years completion timeline. Project to take 12 months to start
NPV post tax (Rs MM) 1,164 Assuming peak tax rate
Per share (Rs) 3.5
Source: Company reports and J.P. Morgan estimates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Oberoi Realty Overweight
OEBO.BO, OBER IN
Acquires ICICI Venture's stake in Glaxo Worli project.
Transaction done at market valuations
Acquires 50% stake in Glaxo Worli project - Oberoi Realty has
acquired 50% stake from ICICI Ventures in a prime 4 acre project in
South Mumbai (Worli). While the transaction price has not been
disclosed by the company; it is expected to be Rs3B as per news reports
(Source: Economic Times). ICICI Ventures has been looking to exit the
project as the tenure of ICICI closed ended fund holding the project
comes to closure. Promoters of Oberoi hold the remainder 50% stake.
Transaction done at current market valuations- At acquisition price
of Rs3B, the implied land cost works out to Rs11-12K psf, on our
assumptions. The transaction with the PE player has been done at current
market valuations and hence does not imply any undervaluation in our
view. We do not expect a meaningful value accretion from the project
(Rs3.5/share on our estimate) unless Oberoi is able to achieve higher FSI
(>2). We believe the transaction however would be earnings accretive
over 2-3 years as it should start flowing through the P/L from FY14/15
onwards.
Project details - This project was jointly acquired by promoters of
Oberoi Realty and ICICI Ventures from GlaxoSmithkline for Rs1.08B in
2004. The project had hit a road block due to approval issues with BMC,
which now seem to have been cleared by Supreme Court. However, an
official project launch will take around 9-12 months as per the company.
We estimate Rs3.5/share net value accretion - At acquisition price of
Rs3B, the implied land cost works out to Rs11-12Kpsf (based on FSI of
2), on our assumptions. Assuming construction cost of Rs6K psf, selling
price of Rs27k psf and construction timeline of 5 years, we estimate
gross margin for the project will be around 35% and net value accretion
will be Rs3.5/share. A proposed launch by a local developer in a nearby
location is expected to be at Rs25-30K psf. Please refer to the table
below for details.
Table 1: Worli project economics
Comments
Land Area (acres) 4.1
Land price (Rs M) 3,000 As per Economic Times
Saleable Area (msf) 0.5
Oberoi stake (50%) 0.3 Oberoi will hold 50% acquired from ICICI Ventures; while promoters hold the remaining stake
Land price (Rs psf) 11,528
Construction cost (Rs psf) 6,000 For high end residential project
Total cost (Rs psf) 17,528
Selling price 27,500 Proposed launch by local developer expected at Rs25-30K psf
Margin psf 9,972
Margin (%) 36%
Total Value 2,595
No of year to completion 6 Assuming 5 years completion timeline. Project to take 12 months to start
NPV post tax (Rs MM) 1,164 Assuming peak tax rate
Per share (Rs) 3.5
Source: Company reports and J.P. Morgan estimates.
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