Slew of launches to drive sales volumes… • Oberoi Realty :: ICICI Securities, PDF link

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Slew of launches to drive sales volumes…
• Oberoi Realty (ORL)’s Q2FY15 results were largely in line with our
expectations. It reported consolidated net sales of | 185.5 crore
(decline of 1.8% YoY) against our expectation of | 186.0 crore
• The EBITDA margin at 60.3% was much higher than our estimate of
55.5% mainly due to product mix and higher realisation seen in
Exquisite project in Goregaon. The PAT at | 70.5 crore (decline of
10.0% YoY) was a tad higher than our estimate of | 68.2 crore
• Sales volumes came in at 41,155 square feet (sq ft) led mainly by
sales volume of 34,570 sq ft from the Oberoi Exquisite project and
the remaining from Oberoi Esquire project
Sales volume to jump significantly on back of slew of launches…
We anticipate ORL’s sales volume will pick up significantly on the back of
a slew of launches in H2FY15. ORL is finally looking to launch its big size
projects such as Mulund project (3.2 mn sq ft), Worli project (1.7 mn sq ft)
and Borivali project (~4.5 mn sq ft). Furthermore, unlike its other projects,
the ticket size for Mulund & Borivali projects is also going to be targeted at
less than | 2 crore. Moreover, ORL is in the process of converting its
commercial projects like Prisma, Maxima (aggregating 0.6 mn sq ft) in
Andheri to residential projects. Out of these Prisma with ~0.3 mn sq ft is
also expected to be launched in Q4FY15. With these slew of launches, we
anticipate ORL’s sales volume will jump from 0.3 mn sq ft in FY14 to 1.9
mn sq ft in FY16E. Consequently, we anticipate topline and PAT will grow
at a CAGR of 58.5% and 50.5%, respectively, over FY14-16E.
Prudent land acquisition strategy resulting into healthy balance sheet…
Unlike its peers, ORL has been prudent in its land acquisition. In the last
decade, it has done only seven or eight acquisitions (including JVs) that
has kept its balance sheet healthy, a key differentiator vis-à-vis its
competitors. Currently, the real estate industry is witnessing a tough
phase due to subdued sales volume particularly in NCR, Mumbai markets.
On the other hand, majority of the players’ balance sheet is at stretched
levels of 0.6-1.0x. In such a scenario, ORL’s healthy balance sheet (net
debt-equity: 0.2x) not only provides comfort over timely execution but
also scope for land acquisition at better terms, going ahead.
Annuity & hospitality business – icing on the cake…
Currently, ORL has three operational assets: Oberoi Mall (0.6 mn sq ft –
contributing | 46.4 crore in H1FY15); Commerz-I (0.4 mn sq ft–
contributing | 24.0 crore in H1FY15) & five star Westin Hotel (269 rooms –
contributing | 56.2 crore in H1FY15). Beside this, ORL has also completed
Commerz-II (0.7 mn sq ft). While Commerz-II is yet to see a pick-up in
leasing activity due to subdued leasing activity, ORL is looking out to
close one deal in H2FY15. Once Commerz-II is fully leased out, ORL’s
rental income would pick up from ~| 150 crore/annum to ~| 250 crore.
Quality player at attractive valuation; maintain BUY
ORL is our top pick in the sector given the quality of land bank, healthy
balance sheet, management bandwidth to execute the projects and
anticipated pick up in the sales volume with new launches such as
Mulund, Borivali and Worli along with attractive valuation. Key risk:
Further delay in launches. We maintain our BUY recommendation with a
revised price target of | 283/share.

LINK
http://content.icicidirect.com/mailimages/IDirect_OberoiRealty_Q2FY15.pdf