Oberoi Realty: All set for a busy 2015 ::Kotak Securities

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All set for a busy 2015. Oberoi has a busy schedule in 2015 with four new projects
expected to be launched in various Mumbai micro-markets. As sales pick up due to new
launches, we see Oberoi generating positive cash flow from operations from FY2016.
We expect the stock to rerate with the launch of the projects. But we do not assign
incremental value due to its tardy project additions. We maintain BUY with an
unchanged target price of `325

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CY2015—a busier calendar than the past
 Our channel checks suggest Oberoi recently soft launched its super-luxury project Prisma in
Andheri (E), which has all construction approvals. The much awaited Mulund (W) project is
expected to be launched in 4QFY15 and the new acquisition in Borivali (E) is expected to be
launched in 1HFY16. At its joint venture in Worli (Oasis JV), Oberoi is aggressively pushing
sales, now that the requisite tie-ups have been completed.
 Despite the launches, we maintain our sales estimates, which in most projects include sales
much beyond completion of construction. Oberoi’s product mix comprises mainly large
luxury and super-luxury projects and we expect the Mumbai market to have a larger number
of projects and developments with larger areas than it did before. We believe this will be the
trend in most large-scale projects (even for other developers) that offer luxury products.
 Our channel checks with the approvals department indicate that Oberoi is likely to get higher
Floor Space Index (FSI) for its slum rehabilitation JV in Worli (Oasis JV) as the scheme has
enhanced the number of its tenements. We estimate this will increase the area for sale by
about 0.8 mn sq. ft, which may translate into additional revenue of `40 bn from the project.
We await clarity on this from the management.
Valuation—a March 2016E target price of `325, no value assigned to business development
We are conservative in our valuation of Oberoi, as we value only its existing projects. Also, we
have assumed sales at most of its projects will continue 2-4 years after completion of
construction. 90% of the value comes from ongoing and forthcoming projects with visibility
and 10% to the land and investments at book value (certain cases at discount to book) of
acquisition/amount invested. As Oberoi has been slow in business development we haven’t
assigned incremental value to the positive operating cash flow to be generated by the
developer. Any incremental land addition will impact valuation positively.
Key risks to our estimates are leasing, construction costs and sales momentum
Key risks to our estimates remain the time of leasing in Commerz 2 (Phase 1), a property that is
complete and not leased, higher-than-expected construction costs and sales momentum.

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