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Cash rich in debt-trapped industry; initiate with a BUY
Premium developer with a strong track record: Oberoi Realty (ORL) is a premium
real estate developer in Mumbai. Till date the group has developed 35 projects with a
saleable area of 6.6msf. The company’s high focus on quality has earned goodwill
from the buyers and hence it earns itself a premium over its peers. The company has
a land bank of 124 acres with a saleable area of 13msf.
Focus on Mumbai, the strongest real estate market in India: Among all macro
markets in India, Mumbai has been the strongest where the impact of property price
correction came later and revival is faster and steeper compared to others cities.
Demand in the region has also remained high between Nov 2008 and Nov 2010,
when absorption grew by more than three-and-half times. Though, due to
unaffordable prices pushed absorption down considerably following the slump in new
launches, we expect increase in the pace of approvals from the government and new
launches by the developers.
Balanced portfolio provides smooth cash flow: ORL has created a strong product
mix, which includes development properties and investment properties (rental
earning). The mix helps the company to enjoy smooth cash flows and places it in
advantageous situation in every business cycle.
Land acquisition is a strategic game, ORL played it well till date: Unlike its peers
in listed space, ORL has not increased its land bank aggressively. The management
does not want to own land bank that has longer than 5-6 years of construction
visibility. This strategy has helped the company in creating a healthy financial
position, which is a rare case in listed space of Indian real estate industry.
Premium to cash is warranted: The strong net cash position places ORL in a good
bargaining position against its peers who are desperate to monetise their land
assets. This helps the company in buying assets at a significant discount either by
paying upfront cash or by entering into joint development with the land owner. Thus,
the company can buy assets with a value of 140x-150x by paying only100x.
Valuation and recommendation: We have valued ORL using NAV approach. We
value the company’s net asset at Rs138bn, including a 30% premium to its cash
balance. We initiate our coverage on ORL with a BUY rating at a target price of
Rs336 (20% discount to NAV), providing 26% upside.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cash rich in debt-trapped industry; initiate with a BUY
Premium developer with a strong track record: Oberoi Realty (ORL) is a premium
real estate developer in Mumbai. Till date the group has developed 35 projects with a
saleable area of 6.6msf. The company’s high focus on quality has earned goodwill
from the buyers and hence it earns itself a premium over its peers. The company has
a land bank of 124 acres with a saleable area of 13msf.
Focus on Mumbai, the strongest real estate market in India: Among all macro
markets in India, Mumbai has been the strongest where the impact of property price
correction came later and revival is faster and steeper compared to others cities.
Demand in the region has also remained high between Nov 2008 and Nov 2010,
when absorption grew by more than three-and-half times. Though, due to
unaffordable prices pushed absorption down considerably following the slump in new
launches, we expect increase in the pace of approvals from the government and new
launches by the developers.
Balanced portfolio provides smooth cash flow: ORL has created a strong product
mix, which includes development properties and investment properties (rental
earning). The mix helps the company to enjoy smooth cash flows and places it in
advantageous situation in every business cycle.
Land acquisition is a strategic game, ORL played it well till date: Unlike its peers
in listed space, ORL has not increased its land bank aggressively. The management
does not want to own land bank that has longer than 5-6 years of construction
visibility. This strategy has helped the company in creating a healthy financial
position, which is a rare case in listed space of Indian real estate industry.
Premium to cash is warranted: The strong net cash position places ORL in a good
bargaining position against its peers who are desperate to monetise their land
assets. This helps the company in buying assets at a significant discount either by
paying upfront cash or by entering into joint development with the land owner. Thus,
the company can buy assets with a value of 140x-150x by paying only100x.
Valuation and recommendation: We have valued ORL using NAV approach. We
value the company’s net asset at Rs138bn, including a 30% premium to its cash
balance. We initiate our coverage on ORL with a BUY rating at a target price of
Rs336 (20% discount to NAV), providing 26% upside.
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