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Oberoi Realty has reported 3QFY12 results with EBITDA in line with our estimates. However revenue
recognition was below our estimate and declined by 53%YoY to IN1.9b. EBITDA margin improved QoQ due to
recent price appreciation across ongoing projects and one-time cost adjustment effect in 2QFY12.
Sales declined sharply QoQ, to 0.12msf (~INR1.8b) as against ~0.19msf (INR2.3b) in 2QFY12 and 0.21msf
(INR2.6b) in 1QFY12. Esquire (Goregaon Garden City) and Grande (JVLR) continues to be key sales driver with
~77%/72% volume/value contribution on 3QFY12 sales. 9MFY12 residential sales stood at 0.52msf/INR6.5b
(up from 0.4msf in 9MFY11) as against our estimate of 0.7msf/INR10.6b in FY12.
During 3QFY12, OBER has repaid ~INR170m of loan of I-Ven Realty, while net cash and cash equivalent stood
at INR13.2b as against INR13.4b in 2QFY12.
Revenue contribution from Esquire is likely to be delayed by a quarter to 1QFY13 (as against earlier expectation
of 4QFY12). Therefore, we are downgrading our FY12 revenue estimate by ~24% and PAT estimate by 17% due
to shifting of revenue recognition of Esquire from 4QFY12.
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, which enable it to command a premium
pricing and enjoy a customer preference. Strong cash surplus of ~INR13.2b offers a huge opportunity to
acquire value-augmenting projects at competitive prices in the backdrop of low competition from cashstrapped
competitors and rationalizing land prices. While successful launch of its super premium project
Oasis (Worli) would be a key sales booster, sustained delay in MoEF approval for Mulund project remains a
major overhang. The stock is currently trading at 10.8x FY13E EPS of INR22.9 and 1.8x FY13E BV and ~24%
discount our NAV of INR325. Maintain Buy.
Key result highlights
Revenue declined by 53%YoY to IN1.9b (v/s. est. of INR2.2b) due to lower than
expected recognition.
EBITDA down by 54%YoY to INR1.1b (est. of INR1.2b), while margin improves to
60.5% (v/s. 52% in 2QFY12) due to a) Price escalation across all ongoing projects
and b) effect of one-time cost escalation adopted in 2QFY12 in Exquite and Grande
on account of change in specification. Also with completion of the Splendor (the
highest margin project), 100% revenue recognition from all incremental sales
from this project has also boosted EBITDA margin in 3QFY12.
PAT increased by 17%YoY to INR1b (v/s. est. of INR1.1b).
QoQ sales volume declined sharply to 0.12msf: During 3QFY12 OBER witnessed
sharp a decline in QoQ sales volume to ~0.12msf (INR1.8b) as against 0.19msf
(INR2.2b) in 2QFY12 and ~0.15msf (INR3.2b) in 3QFY11. Esquire and Grande
continue to remain key sales driver with 55% and 22% contribution respectively.
While challenging macro remains the major attributable factor, the company has
raised prices across all its ongoing projects by ~10%, which could be the other
factor for sales decline. 9MFY12 residential sales stood at 0.52msf/INR6.5b (up
from 0.4msf in 9MFY11) as against our est. of 0.7msf/INR10.6b in FY12E.
Lower incremental sales continues in revenue contributing projects: During
3QFY12, OBER's revenue stood at INR1.9b, comprising a) INR575m of annuity
income (v/s. INR510m in 2QFY12) and b) INR1.2b from (v/s. INR1.6b in 2QFY12)
recognition of sales from residential projects. The key revenue contributing
residential projects are:
1. Exquisite (INR0.3b v/s. INR0.6b in 2QFY12) - sales of 0.01msf (8units)
2. Splendor (INR0.5b v/s. INR0.7b in 2QFY12) - sales of 0.01msf (14 units)
3. Grande (INR0.3b v/s. INR0.3b in 2QFY12) - sales of 0.03msf (15 units)
Contribution from Esquire to be delayed to FY13: OBER's FY12 sales have been
largely driven by Esquire, which contributed for ~69%/64% of sales volume/value
during 9MFY12. However, the project is unlikely to cross the recognition threshold
of 20% in 4QFY12 and is expected to be delayed till 1QFY13. Esquire has achieved
sales of ~INR7.5b till 3QFY12, which offers a strong revenue visibility in 1QFY13.
Nonetheless, we are downgrading our FY12 revenue estimate by ~24%, due to
shifting of revenue recognition of Esquire by a quarter.
Annuity income improves QoQ: During 3QFY12, OBER's annuity income stood at
INR555m v/s INR497m in 2QFY12 and INR518m in 3QFY11. While uptick in
contribution is largely attributable to higher ARR (~14% up QoQ) and occupancy at
Westin. However the occupancy of 64% is far below the management's expected
steady state level of ~70% - which kept the EBITDA margin for Westin subdued at
~24%.
Key con-call takeaways:
The management expects a brighter period for Real Estate sector with several
regulatory improvements and potential softening of rate-cycle. It expressed
extreme satisfaction with new amendments in DCR, which creates a level playing
field across companies. The Mulund project could see a ~15% increase in saleable
area with new plan.
OBER plans to launch its super luxury Worli project in 4QFY12, and Mulund, Exquisite
phase IIII and a small project (~48000sf) in Bandra in FY13. While commercial market
remain challenging, a steady execution at Commerz II (Phase I) has been
incommensurate with company's strategy to grasp the benefit of a ready property
once the markets recovers.
According to the management, The impact on price increase on sales volume has
been limited, given 70-80% of sales in 3QFY12 has happened at higher prices.
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
hassle-free 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. Idle cash for long time could impact RoE
Sluggish Mumbai market.
Recent developments
During 3QFY12 OBER witnessed sharp a decline in
QoQ sales volume to ~0.12msf (INR1.8b) as against
0.19msf (INR2.2b) in 2QFY12 and ~0.15msf (INR3.2b)
in 3QFY11.
Work has commenced at Worli project with Samsung.
The company invested INR1.4b till date.
Valuation and view
The stock is currently trading at 10.8x FY13E EPS of
INR22.9 and 1.8x FY13E BV and ~24% discount our
NAV of INR325. 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 macro-picture, likelihood of interest rate
cut and increasing focus on execution, we believe
the outlook will improve going forward.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Oberoi Realty has reported 3QFY12 results with EBITDA in line with our estimates. However revenue
recognition was below our estimate and declined by 53%YoY to IN1.9b. EBITDA margin improved QoQ due to
recent price appreciation across ongoing projects and one-time cost adjustment effect in 2QFY12.
Sales declined sharply QoQ, to 0.12msf (~INR1.8b) as against ~0.19msf (INR2.3b) in 2QFY12 and 0.21msf
(INR2.6b) in 1QFY12. Esquire (Goregaon Garden City) and Grande (JVLR) continues to be key sales driver with
~77%/72% volume/value contribution on 3QFY12 sales. 9MFY12 residential sales stood at 0.52msf/INR6.5b
(up from 0.4msf in 9MFY11) as against our estimate of 0.7msf/INR10.6b in FY12.
During 3QFY12, OBER has repaid ~INR170m of loan of I-Ven Realty, while net cash and cash equivalent stood
at INR13.2b as against INR13.4b in 2QFY12.
Revenue contribution from Esquire is likely to be delayed by a quarter to 1QFY13 (as against earlier expectation
of 4QFY12). Therefore, we are downgrading our FY12 revenue estimate by ~24% and PAT estimate by 17% due
to shifting of revenue recognition of Esquire from 4QFY12.
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, which enable it to command a premium
pricing and enjoy a customer preference. Strong cash surplus of ~INR13.2b offers a huge opportunity to
acquire value-augmenting projects at competitive prices in the backdrop of low competition from cashstrapped
competitors and rationalizing land prices. While successful launch of its super premium project
Oasis (Worli) would be a key sales booster, sustained delay in MoEF approval for Mulund project remains a
major overhang. The stock is currently trading at 10.8x FY13E EPS of INR22.9 and 1.8x FY13E BV and ~24%
discount our NAV of INR325. Maintain Buy.
Key result highlights
Revenue declined by 53%YoY to IN1.9b (v/s. est. of INR2.2b) due to lower than
expected recognition.
EBITDA down by 54%YoY to INR1.1b (est. of INR1.2b), while margin improves to
60.5% (v/s. 52% in 2QFY12) due to a) Price escalation across all ongoing projects
and b) effect of one-time cost escalation adopted in 2QFY12 in Exquite and Grande
on account of change in specification. Also with completion of the Splendor (the
highest margin project), 100% revenue recognition from all incremental sales
from this project has also boosted EBITDA margin in 3QFY12.
PAT increased by 17%YoY to INR1b (v/s. est. of INR1.1b).
QoQ sales volume declined sharply to 0.12msf: During 3QFY12 OBER witnessed
sharp a decline in QoQ sales volume to ~0.12msf (INR1.8b) as against 0.19msf
(INR2.2b) in 2QFY12 and ~0.15msf (INR3.2b) in 3QFY11. Esquire and Grande
continue to remain key sales driver with 55% and 22% contribution respectively.
While challenging macro remains the major attributable factor, the company has
raised prices across all its ongoing projects by ~10%, which could be the other
factor for sales decline. 9MFY12 residential sales stood at 0.52msf/INR6.5b (up
from 0.4msf in 9MFY11) as against our est. of 0.7msf/INR10.6b in FY12E.
Lower incremental sales continues in revenue contributing projects: During
3QFY12, OBER's revenue stood at INR1.9b, comprising a) INR575m of annuity
income (v/s. INR510m in 2QFY12) and b) INR1.2b from (v/s. INR1.6b in 2QFY12)
recognition of sales from residential projects. The key revenue contributing
residential projects are:
1. Exquisite (INR0.3b v/s. INR0.6b in 2QFY12) - sales of 0.01msf (8units)
2. Splendor (INR0.5b v/s. INR0.7b in 2QFY12) - sales of 0.01msf (14 units)
3. Grande (INR0.3b v/s. INR0.3b in 2QFY12) - sales of 0.03msf (15 units)
Contribution from Esquire to be delayed to FY13: OBER's FY12 sales have been
largely driven by Esquire, which contributed for ~69%/64% of sales volume/value
during 9MFY12. However, the project is unlikely to cross the recognition threshold
of 20% in 4QFY12 and is expected to be delayed till 1QFY13. Esquire has achieved
sales of ~INR7.5b till 3QFY12, which offers a strong revenue visibility in 1QFY13.
Nonetheless, we are downgrading our FY12 revenue estimate by ~24%, due to
shifting of revenue recognition of Esquire by a quarter.
Annuity income improves QoQ: During 3QFY12, OBER's annuity income stood at
INR555m v/s INR497m in 2QFY12 and INR518m in 3QFY11. While uptick in
contribution is largely attributable to higher ARR (~14% up QoQ) and occupancy at
Westin. However the occupancy of 64% is far below the management's expected
steady state level of ~70% - which kept the EBITDA margin for Westin subdued at
~24%.
Key con-call takeaways:
The management expects a brighter period for Real Estate sector with several
regulatory improvements and potential softening of rate-cycle. It expressed
extreme satisfaction with new amendments in DCR, which creates a level playing
field across companies. The Mulund project could see a ~15% increase in saleable
area with new plan.
OBER plans to launch its super luxury Worli project in 4QFY12, and Mulund, Exquisite
phase IIII and a small project (~48000sf) in Bandra in FY13. While commercial market
remain challenging, a steady execution at Commerz II (Phase I) has been
incommensurate with company's strategy to grasp the benefit of a ready property
once the markets recovers.
According to the management, The impact on price increase on sales volume has
been limited, given 70-80% of sales in 3QFY12 has happened at higher prices.
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
hassle-free 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. Idle cash for long time could impact RoE
Sluggish Mumbai market.
Recent developments
During 3QFY12 OBER witnessed sharp a decline in
QoQ sales volume to ~0.12msf (INR1.8b) as against
0.19msf (INR2.2b) in 2QFY12 and ~0.15msf (INR3.2b)
in 3QFY11.
Work has commenced at Worli project with Samsung.
The company invested INR1.4b till date.
Valuation and view
The stock is currently trading at 10.8x FY13E EPS of
INR22.9 and 1.8x FY13E BV and ~24% discount our
NAV of INR325. 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 macro-picture, likelihood of interest rate
cut and increasing focus on execution, we believe
the outlook will improve going forward.
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