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2QFY12 key result highlights
Oberoi Realty reported 2QFY12 numbers above our estimate. EBITDA grew 15% YoY to INR1.2b (est INR1b), while
EBITDA margin declined to 52% (v/s 56% in 1QFY12) due to change in revenue mix and cost escalation in Exquite
and Grande on account of change in specification.
Revenue grew 31% YoY to INR2.2b (est INR1.7b), was above our expectation due to strong progress in construction,
while PAT grew 17%YoY to INR1.1b (est INR0.9b).
Sales volume declined to 0.19msf (INR2.3b) as against 0.21msf (INR2.6b). Esquire accounted for ~70%/65% of
sales volume/value. However customer collection improved to INR 2.7b v/s INR1.9b in 1QFY12.
The company stated delay in launch of (a) Oasis, Worli to 4QFY12 as against 3QFY12 earlier and (b) Exotica,
Mulund to 1QFY13 as against 2HFY12 earlier.
Net cash stood at INR13.4b (v/s INR15.6b in 1QFY12). The much-awaited deployment of surplus cash started with
50% stake acquisition in Worli project from ICICI Ventures.
1HFY12 semi-annualized RoCE declined to 6.25% (v/s annualized RoCE of 19.9% in FY11 and 27.6% in FY10) due
to huge idle cash in balance sheet.
The stock is currently trading at 9.1x FY13E EPS of INR25.9 and 1.7x FY13E BV and ~28% discount our NAV of
INR326. Maintain Buy.
Sales volume down QoQ; customer collection improved
2QFY12 sales volume declined QoQ to ~0.19msf (INR2.3b) as against 0.21msf
(INR2.6b) in 1QFY12 and ~0.3msf (INR3.5b) in 4QFY11.
Esquire (Goregaon Garden City, Phase II) continues to remain key sales driver with
~0.13msf of incremental sales as against 0.17msf in 1QFY12.
While, we believe, the lower sales rate at Esquire has certain cannibalization effect on
sales volume of its other under construction Garden City projects Exquisite over past
3 quarters, it is comfortable with sales velocity at Exquisite as almost ~50% of project
is sold till date. It plans to monetize remaining portion after further progress in
construction, which could lead to natural escalation in realization.
During 2QFY12, the customer collection improved significantly to INR2.7b as against
INR1.9b in 1QFY12, largely due to better execution.
Strong execution led higher revenue recognition, margin declined due to
change in revenue mix
OBER's 2QFY12 revenue stood at INR2.2b, comprising a) INR510m of annuity income
(v/s INR523m in 1QFY12) and b) INR1.6b sales recognition from residential projects
(v/s INR1b in 1QFY12).
Steady progress in construction activities has resulted into higher than expected revenue
recognition during 2QFY12.
While 100% construction has been completed in Splendor, Exquisite and Grande are
also progressing well with 39% and 45% respective completion
EBITDA margin dropped to 52% as against 56%, largely due to
(i) Change in revenue mix with higher share of revenue recognition (38% v/s. 31% in
1QFY12) from project Splendor, which has relatively lower sales realization among
three revenue contributing projects.
(ii) Revision in specifications in Oberoi Grande and Exquisite, which led some escalation
in construction cost in these projects
(iii) Possible cost adjustment in Spledor, which witnessed 100% construction completion
during 2QFY12
(iv) Change in interest penalty charge on late payment to 9% from 24% in Splendor
Project Esquire, which accounted for ~70%/65% of sales volume/value during
2QFY12, is yet to cross the recognition threshold of 20% and incremental sales in
revenue contributing projects has been muted. The key revenue contributing residential
projects are:
Exquisite (INR0.7b v/s INR0.5b in 1QFY12) - incremental sales of 0.02msf
Splendor (INR0.6b v/s INR0.3b in 1QFY12) - incremental sales of 3 units
Grande (INR0.3b v/s INR0.2b in 1QFY12) - incremental sales of 0.03msf.
The management has guided for possible revenue recognition of Esquire in 4QFY12/
1QFY13, which could lead to a sharp jump in revenue during the quarter, since the
project has already crossed INR6.6b of sales.
The company also stated delay in launch of (a) Oasis, Worli to 4QFY12 as against
3QFY12 earlier and (b) Exotica, Mulund to 1QFY13 as against 2HFY12 earlier. While
Mulund project has already been cleared by Supreme court on MoEF ground, the
process of approval is moving slow from State government's end.
The management expects the pricing is unlikey to come down in its ongoing projects,
rather it is planning to increase prices in Esquire
Valuation and view
OBER has established strong brand equity among Mumbai developers due to its 1)
focus on destination development, 2) superior product quality, and 3) management
goodwill. All this enables it to command premium pricing and enjoy customer preference.
Strong cash surplus of ~INR13.4b offers a huge opportunity to acquire valueaugmenting
projects at competitive prices in the backdrop of low competition from
cash-strapped competitors and rationalizing land prices.
The stock is currently trading at 9.1x FY13E EPS of INR26.1 and 1.7x FY13E BV
and ~28% discount our NAV of INR326. Maintain Buy.
Company description
Oberoi Realty Limited is a Mumbai-based real estate
developer. It was incorporated in May 1998 as Kingston
Properties Private Ltd. ORL’s primary focus is to develop
residential property but it has diversified into retail,
commercial, hospitality and social infrastructure projects.
ORL has undertaken ~5msf of RE development across 35
projects so far.
Key investment arguments
ORL has a strong brand in Mumbai’s RE market due to
its (1) diversified products, (2) superior product quality
and (3) management goodwill, which enable it to
command a pricing premium over peers.
ORL is expected to successfully monetize its land bank
over 6-7 years as its healthy cash position and hasslefree
land imply certainty of execution. This provides
high cash flow visibility, adding to its net cash surplus of
~Rs16b.
ORL enjoys steady cash flow from its annuity assets,
which insulates it from vagaries of the RE cycle.
Key investment risks
Land acquisition challenges due to high cost of land in
Mumbai.
Possible impact of FSI regulation and sluggish market.
Recent developments
During 2QFY12, OBER bought 50% stake in I-Ven
realty, held by ICICI Venture in the residential project
in south Mumbai at ~INR3b.
Sales volume declined to 0.19msf (INR2.3b) as against
0.21msf (INR2.6b). Esquire accounted for ~70%/65%
of sales volume/value. However customer collection
improved to INR 2.7b v/s INR1.9b in 1QFY12.
Valuation and view
The stock is currently trading at 9.1x FY13E EPS of
INR25.9 and 1.7x FY13E BV and ~28% discount our
NAV of INR326. Maintain Buy.
Sector view
RE sector has been a major underperformer over the
last 12 months with multiple operational and nonoperational
headwinds such as volume slowdown (due
to declining affordability), monetary tightening, pilling
liquidity pressure etc. However, with a buoyant macropicture,
increasing focus on execution and ongoing
revival in the commercial and retail segments, we
believe the outlook will improve going forward.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
2QFY12 key result highlights
Oberoi Realty reported 2QFY12 numbers above our estimate. EBITDA grew 15% YoY to INR1.2b (est INR1b), while
EBITDA margin declined to 52% (v/s 56% in 1QFY12) due to change in revenue mix and cost escalation in Exquite
and Grande on account of change in specification.
Revenue grew 31% YoY to INR2.2b (est INR1.7b), was above our expectation due to strong progress in construction,
while PAT grew 17%YoY to INR1.1b (est INR0.9b).
Sales volume declined to 0.19msf (INR2.3b) as against 0.21msf (INR2.6b). Esquire accounted for ~70%/65% of
sales volume/value. However customer collection improved to INR 2.7b v/s INR1.9b in 1QFY12.
The company stated delay in launch of (a) Oasis, Worli to 4QFY12 as against 3QFY12 earlier and (b) Exotica,
Mulund to 1QFY13 as against 2HFY12 earlier.
Net cash stood at INR13.4b (v/s INR15.6b in 1QFY12). The much-awaited deployment of surplus cash started with
50% stake acquisition in Worli project from ICICI Ventures.
1HFY12 semi-annualized RoCE declined to 6.25% (v/s annualized RoCE of 19.9% in FY11 and 27.6% in FY10) due
to huge idle cash in balance sheet.
The stock is currently trading at 9.1x FY13E EPS of INR25.9 and 1.7x FY13E BV and ~28% discount our NAV of
INR326. Maintain Buy.
Sales volume down QoQ; customer collection improved
2QFY12 sales volume declined QoQ to ~0.19msf (INR2.3b) as against 0.21msf
(INR2.6b) in 1QFY12 and ~0.3msf (INR3.5b) in 4QFY11.
Esquire (Goregaon Garden City, Phase II) continues to remain key sales driver with
~0.13msf of incremental sales as against 0.17msf in 1QFY12.
While, we believe, the lower sales rate at Esquire has certain cannibalization effect on
sales volume of its other under construction Garden City projects Exquisite over past
3 quarters, it is comfortable with sales velocity at Exquisite as almost ~50% of project
is sold till date. It plans to monetize remaining portion after further progress in
construction, which could lead to natural escalation in realization.
During 2QFY12, the customer collection improved significantly to INR2.7b as against
INR1.9b in 1QFY12, largely due to better execution.
Strong execution led higher revenue recognition, margin declined due to
change in revenue mix
OBER's 2QFY12 revenue stood at INR2.2b, comprising a) INR510m of annuity income
(v/s INR523m in 1QFY12) and b) INR1.6b sales recognition from residential projects
(v/s INR1b in 1QFY12).
Steady progress in construction activities has resulted into higher than expected revenue
recognition during 2QFY12.
While 100% construction has been completed in Splendor, Exquisite and Grande are
also progressing well with 39% and 45% respective completion
EBITDA margin dropped to 52% as against 56%, largely due to
(i) Change in revenue mix with higher share of revenue recognition (38% v/s. 31% in
1QFY12) from project Splendor, which has relatively lower sales realization among
three revenue contributing projects.
(ii) Revision in specifications in Oberoi Grande and Exquisite, which led some escalation
in construction cost in these projects
(iii) Possible cost adjustment in Spledor, which witnessed 100% construction completion
during 2QFY12
(iv) Change in interest penalty charge on late payment to 9% from 24% in Splendor
Project Esquire, which accounted for ~70%/65% of sales volume/value during
2QFY12, is yet to cross the recognition threshold of 20% and incremental sales in
revenue contributing projects has been muted. The key revenue contributing residential
projects are:
Exquisite (INR0.7b v/s INR0.5b in 1QFY12) - incremental sales of 0.02msf
Splendor (INR0.6b v/s INR0.3b in 1QFY12) - incremental sales of 3 units
Grande (INR0.3b v/s INR0.2b in 1QFY12) - incremental sales of 0.03msf.
The management has guided for possible revenue recognition of Esquire in 4QFY12/
1QFY13, which could lead to a sharp jump in revenue during the quarter, since the
project has already crossed INR6.6b of sales.
The company also stated delay in launch of (a) Oasis, Worli to 4QFY12 as against
3QFY12 earlier and (b) Exotica, Mulund to 1QFY13 as against 2HFY12 earlier. While
Mulund project has already been cleared by Supreme court on MoEF ground, the
process of approval is moving slow from State government's end.
The management expects the pricing is unlikey to come down in its ongoing projects,
rather it is planning to increase prices in Esquire
Valuation and view
OBER has established strong brand equity among Mumbai developers due to its 1)
focus on destination development, 2) superior product quality, and 3) management
goodwill. All this enables it to command premium pricing and enjoy customer preference.
Strong cash surplus of ~INR13.4b offers a huge opportunity to acquire valueaugmenting
projects at competitive prices in the backdrop of low competition from
cash-strapped competitors and rationalizing land prices.
The stock is currently trading at 9.1x FY13E EPS of INR26.1 and 1.7x FY13E BV
and ~28% discount our NAV of INR326. Maintain Buy.
Company description
Oberoi Realty Limited is a Mumbai-based real estate
developer. It was incorporated in May 1998 as Kingston
Properties Private Ltd. ORL’s primary focus is to develop
residential property but it has diversified into retail,
commercial, hospitality and social infrastructure projects.
ORL has undertaken ~5msf of RE development across 35
projects so far.
Key investment arguments
ORL has a strong brand in Mumbai’s RE market due to
its (1) diversified products, (2) superior product quality
and (3) management goodwill, which enable it to
command a pricing premium over peers.
ORL is expected to successfully monetize its land bank
over 6-7 years as its healthy cash position and hasslefree
land imply certainty of execution. This provides
high cash flow visibility, adding to its net cash surplus of
~Rs16b.
ORL enjoys steady cash flow from its annuity assets,
which insulates it from vagaries of the RE cycle.
Key investment risks
Land acquisition challenges due to high cost of land in
Mumbai.
Possible impact of FSI regulation and sluggish market.
Recent developments
During 2QFY12, OBER bought 50% stake in I-Ven
realty, held by ICICI Venture in the residential project
in south Mumbai at ~INR3b.
Sales volume declined to 0.19msf (INR2.3b) as against
0.21msf (INR2.6b). Esquire accounted for ~70%/65%
of sales volume/value. However customer collection
improved to INR 2.7b v/s INR1.9b in 1QFY12.
Valuation and view
The stock is currently trading at 9.1x FY13E EPS of
INR25.9 and 1.7x FY13E BV and ~28% discount our
NAV of INR326. Maintain Buy.
Sector view
RE sector has been a major underperformer over the
last 12 months with multiple operational and nonoperational
headwinds such as volume slowdown (due
to declining affordability), monetary tightening, pilling
liquidity pressure etc. However, with a buoyant macropicture,
increasing focus on execution and ongoing
revival in the commercial and retail segments, we
believe the outlook will improve going forward.
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