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Deploying cash
Oberoi realty has finally started making use of its cash by deploying
Rs3bn (reported, not confirmed by the company) of Rs16bn cash that it
had. At the base case, its NAV neutral though potential parking FSI can be
additional. Sales rate at its existing properties remain sluggish and we cut
FY12 and FY13 earnings by 18-30% as we push back commercial / new
launches. Yet, simplicity of its business model coupled with better
corporate governance makes it our top pick in the sector.
50% stake purchased in a prime plot…
Oberoi Realty has purchased 50% stake in a 4.12acre plot situated at Worli,
Central Mumbai from ICICI Ventures - a private equity investor. The
remaining stake rests with the promoters; who had bought the land from
Glaxo in 2004; and will continue to remain invested. The land has remained
undeveloped due to an issue regarding BMC charging 50% transfer fee on any
transactions in such properties which have been given on long term leases.
The Supreme Court, earlier this month, had upheld an earlier High Court
judgement which disallowed the levy of 50% transfer fee by BMC.
… not NAV additive in short term though
Media reports put the purchase cost of land at Rs3.0bn. Assuming a
residential saleable area potential of c.0.40m sf for the land (1.33x base FSI,
40% loading), the NAV breakeven for the project will be around a selling price
Rs32,000/sf. With approvals from BMC yet to be obtained; a
sales/construction launch may be an FY14 event. Additional parking FSI
related benefits will be an upside.
Cut earnings, NAV to factor in Mumbai property issues
We factor in flat property prices in FY12 and FY13 for both residential and
commercial property now. With large scale sales of commercial property also
slow to come by, we push out sale of Oberoi’s Andheri commercial properties
into FY13. Also, pending no movement on the Mulund property approvals, we
push its launch to FY13 now. These lead to cut in its earnings by 18-30%.
Balance sheet strong, Worli launch awaited
Oberoi is working on finalizing its partner for the Worli project and the project
launch is expected by early 4Q. Post the stake purchase above, Oberoi still
has Rs12-13bn of net cash on its balance sheet; making future NAV upgrades
a possibility. Oberoi remains our favourite pick in the sector thanks to
simplicity of its business model coupled with better corporate governance.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Deploying cash
Oberoi realty has finally started making use of its cash by deploying
Rs3bn (reported, not confirmed by the company) of Rs16bn cash that it
had. At the base case, its NAV neutral though potential parking FSI can be
additional. Sales rate at its existing properties remain sluggish and we cut
FY12 and FY13 earnings by 18-30% as we push back commercial / new
launches. Yet, simplicity of its business model coupled with better
corporate governance makes it our top pick in the sector.
50% stake purchased in a prime plot…
Oberoi Realty has purchased 50% stake in a 4.12acre plot situated at Worli,
Central Mumbai from ICICI Ventures - a private equity investor. The
remaining stake rests with the promoters; who had bought the land from
Glaxo in 2004; and will continue to remain invested. The land has remained
undeveloped due to an issue regarding BMC charging 50% transfer fee on any
transactions in such properties which have been given on long term leases.
The Supreme Court, earlier this month, had upheld an earlier High Court
judgement which disallowed the levy of 50% transfer fee by BMC.
… not NAV additive in short term though
Media reports put the purchase cost of land at Rs3.0bn. Assuming a
residential saleable area potential of c.0.40m sf for the land (1.33x base FSI,
40% loading), the NAV breakeven for the project will be around a selling price
Rs32,000/sf. With approvals from BMC yet to be obtained; a
sales/construction launch may be an FY14 event. Additional parking FSI
related benefits will be an upside.
Cut earnings, NAV to factor in Mumbai property issues
We factor in flat property prices in FY12 and FY13 for both residential and
commercial property now. With large scale sales of commercial property also
slow to come by, we push out sale of Oberoi’s Andheri commercial properties
into FY13. Also, pending no movement on the Mulund property approvals, we
push its launch to FY13 now. These lead to cut in its earnings by 18-30%.
Balance sheet strong, Worli launch awaited
Oberoi is working on finalizing its partner for the Worli project and the project
launch is expected by early 4Q. Post the stake purchase above, Oberoi still
has Rs12-13bn of net cash on its balance sheet; making future NAV upgrades
a possibility. Oberoi remains our favourite pick in the sector thanks to
simplicity of its business model coupled with better corporate governance.
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