Sharekhan PDF link: Pulse - IIP growth declines to 1.8% in December 2011; Update - Orbit Corporation, ISMT

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PULSE TRACK IIP growth declines to 1.8% in December 2011 In December 2011 the Index of Industrial Production (IIP) grew by 1.8%, which is a tad lower than the market's expectations. The relatively subdued performance was led by a weak performance in the manufacturing sector and a sharp decline in the capital goods sector. On a year till date (YTD) basis, the IIP growth stands at 3.6% as against 8.3% in the corresponding period of FY2011.

Hold Orbit Corporation; Target : Rs 52 :: ICICI Securities, (pdf link)

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http://content.icicidirect.com/mailimages/ICICIdirect_OrbitCorporation_Q3FY12.pdf


M u t e d   r e s u l t s ;   p r e - s a l e s   v o l u m e   i m p r o v e s …
Orbit’s Q3FY12 performance was lower than our estimates as execution
remained muted. The higher interest cost (| 32.7 crore vs. our estimate of
| 28.5 crore) led to lower bottomline despite higher margin of ~54% vs.
our estimates of ~44%. However, pre-sales volume at 32,921 sq ft vs. last
three quarter’s average of ~10,000 sq ft was a positive. The management
seemed confident of robust pre-sales through fire sale at Orbit Residency
and Terraces. However, we maintain our HOLD rating and believe that an
improvement in collection and pre-sales volume would hold the key for
the stock performance, going ahead.
ƒ Execution remains muted…interest cost hurts bottomline
Orbit reported a topline of | 71.5 crore vs. our estimate of | 90.7 crore as
execution across projects remained muted. The EBITDA at ~54% was,
however, better than our estimate of ~44%. The PAT was lower at | 3.3
crore vs. our estimate of | 7.7 crore mainly on account of higher interest
expenses of | 32.7 vs. our estimates of | 28.5 crore.
ƒ Pre-sales improve after three poor quarters
Orbit’s pre-sales volume improved at 32,921 sq ft in Q3 FY12 vs. ~9,000
- ~11,000 sq ft seen in the prior three quarters. The improved pre-sales
despite no new launches during the quarter was a breather. In our view,
while Orbit would exceed its pre-sales target of 45,000 sq ft set for
H2FY12, we would further like to see a pick-up in the sales volume given
no new project launches and peak level prices in the region.
ƒ Net debt at | 855 crore; Orbit WTC collection holds key to pare it
Orbit’s net debt to equity remained high at 0.8x with net debt of | 855
crore. Debtors level also increased marginally  at | 543 crore vs. | 531
crore in Q2FY12. It collected | 15 crore in Q3FY12 and further | 15 crore
in January 2012 from Orbit WTC. Remaining | 147 crore is expected to
be received in FY13E (| 50 crore to be received in H1FY13E with receipt
of OC). These collections would enable it to reduce its debt level.
V a l u a t i o n
At the CMP of | 53, the stock is trading at 0.6x FY13 P/BV. We maintain
our HOLD recommendation on the stock and value it at | 52 (0.8x its NAV
of | 65). While an improvement in pre-sales and peaked interest rate,
signalling rate-cut from here, are positive, we believe a further pick-up in
sales volume, improvement in sales collection and debt reduction holds
the key for the stock performance.

Hold Orbit Corporation; Target :Rs 38 ::ICICI Securities

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W e a k n e s s   i n   v o l u m e   o f f t a k e   p e r s i s t s …
Orbit reported another disappointing quarterly performance with weak
presales volumes, slower execution and lower margins. Pre-sales
volumes remained weak at 9,034 sq ft (lowest in the last 11 quarters) in
Q2FY12 vs. 9,985 sq ft in Q1FY12, reflecting the weak buyer’s sentiments.
The management has indicated pickup in volume offtake and execution
from Q4FY12 with improvement on the regulatory front. However, we
maintain HOLD rating on the stock  given the weak volume offtake in
Mumbai and challenging funding environment for the industry.
ƒ Disappointing performance
Orbit reported a topline of | 103.4 crore vs. our expectation of | 82.6
crore as | 50 crore of revenues were booked for Ocean Parque
property sales. The OPM at 33.6% was much lower than our estimates
of 43.8% on account of higher expenses charged against the Ocean
Parque revenues.
ƒ Management expects pre-sales of ~65,000 sq ft in FY12
The management has indicated that it expects pre-sales volumes of
~65,000 sq ft in FY12 (guided 1, 30,000 sq ft at the beginning of FY12).
This implies pre-sales volumes of ~46,000 sq ft in H2FY12 where they
are looking to book ~ 20,000 sq ft from Andheri Project, ~15,000 sq ft
from Orbit Terraces and the rest from Orbit Laburnum, which Orbit is
looking to launch in Q4FY12.
ƒ Ocean Parque money, WTC collection key for cash flows going ahead
Orbit has so far collected | 50 crore from Ocean Parque out of its share
of | 115 crore (sold it for | 235  crore in Q1FY12). The remaining
amount of | 65 crore is expected after the settlement with the tenants.
Additionally, it is looking to collect ~| 80 crore from Orbit WTC in
FY12E. We believe these collections would hold the key for Orbit
considering its stretched cash flow situation.
V a l u a t i o n
At the CMP, the stock is trading at 0.4x FY13 P/BV. We maintain our HOLD
recommendation on the stock and value the stock at | 38 (0.6x its NAV of
| 63), given the weak volume offtake in Mumbai and challenging funding
environment for the industry. We expect a pick-up in pre-sales volume to
hold the key for the stock price performance, going ahead.

52 week Flop: Orbit Corporation:: Business Line,

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The stock of Orbit Corporation slid 76 per cent over the last three years, with the declines more pronounced in the last one year. Interestingly, Orbit showed strength in financial performance in 2008 and continued the robust show until June 2009, on the back of strong execution in projects. However, for four quarters now, starting September 2010, both sales and earnings have been on a declining trend.

This Mumbai-based real estate player has been seeing slower execution of projects and poor volume off-take. New launches too have seen a sharp slowdown what with delays in approvals.

For the quarter ending June, consolidated sales declined 29 per cent over a year ago to Rs 85 crore, while net profits fell sharply by 55 per cent to Rs 9 crore.

Volumes sold in the June quarter dipped to 9,985 sq.ft. from 11,249 sq.ft. seen in March. This is also an indication that new launches have been slow. As a result of slower execution, cash flows have suffered.

Net debt-equity ratio at 0.8 times may not decline unless cash flows improve. The promised pipeline of launches in Lalbaugh, Santacruz and Napeansea Road in FY-12 may hold the key for improving cash flows

Hold Orbit Corporation; Target : 41 ::ICICI Securities,

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V o l u m e   o f f t a k e   a t   n a d i r   …
Orbit Corporation (Orbit)  had a  disappointing  operating performance in
Q1FY12 due to slower execution of projects and persistent poor volume
off takes. The topline declined by ~29% YoY to | 85 crore marred by
slow execution. The margin at 38.4% was lower on account of cost
overrun to the tune of ~| 8 crore in Orbit WTC. While, we anticipate that
cash flow from Orbit WTC & sale of Ocean Parque would be key triggers
for the stock price performance, we  expect weak pre-sales volume and
pledging of shares (~55%) would remain overhang for the stock.
ƒ Pre-sales weakness persists
The pre-sales volume has come down further to 9,985 sq ft in Q1 FY12
v/s 11,249 sq ft in Q4 FY11 on account of no new launches during the
quarter and receding volume offtake in existing projects. The pre-sales
volume (lowest in last 10 quarter) clearly reflects weak buyer sentiments
and price moderation is inevitable for pickup in the volume
ƒ Launch pipeline key for cash flows going ahead
The company indicated that it is looking to launch 3 projects (Lalbaugh,
Santacruz and Napeansea Road) in FY12. We believe successful launch
of the same would be key for the cash flows which have not seen any
improvement from the last couple of quarters
ƒ Ocean Parque sales deal in discussion
Orbit informed that it is in discussion with Mahindra Lifespace for sale
of Ocean Parque project at Napeansea Road. Mahindra Lifespace has
signed the term sheet and Orbit has received advance of | 11 crore. The
deal is expected at ~| 235-250 crore. Ocean Parque sale receipt will be
a boost to crunch cash flow situation of the company
V a l u a t i o n
At the CMP, the stock is trading at 0.4x FY13 P/BV. Though we anticipate
that cash flow from Orbit WTC & sale of Ocean Parque would be key
triggers for the stock price performance, we recommend Hold on the
stock given the weak volume offtake in Mumbai and challenging funding
environment for the industry. Additionally, pledging of shares by
promoters (55%) would remain overhang for the stock.

Buy Orbit Corporation - Long-term gain, though short-term pain; Anand Rathi

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Orbit Corporation
Long-term gain, though short-term pain; maintain Buy
We cut our NAV to `100 for Mar ’12e from `181 for Sep ’11e and
lower our price target to `80, accounting for the recent business
and policy changes. Sales have been below guidance mainly
owing to lower sales at Mandwa, and construction and
collections being below par. We believe cash collection would
improve in FY12e; maintain Buy.
 Lackluster FY11. As against FY11e sales guidance of 0.55m sqft,
9MFY11 sales stand at only 0.274m sqft, with 4Q unlikely to add
cheer. The guidance miss is mainly due to substantially fewer sales
at Mandwa. Further, with less than 10% cash received from
project launches in FY11, construction and collections were slow.
 FY12 cash generation to be good; but acquisitions to decide
balance-sheet strength. Of the `6.4bn collections expected in
FY12e, ~40% would be from completed projects as against
construction outgo of `2-2.5bn. But, management guidance on
rise in debt ahead indicates plans of big-ticket acquisitions.
 Change in estimates and methodology. In line with changes in
Jan ’11 for our coverage realty companies, we re-value projects
where full payments are awaited. This would alter our valuation
for projects such as Kilachand, Lalbaug and NS Road Block.
 Valuation and risks. Our Mar ’12e NAV and price target are
`100 and `80 respectively. At current market price, the stock
trades at 6.7x Mar ’12e PE. Risks: Political/policy uncertainty
could further delay approvals; further slowdown in sales.


Valuation
In line with changes in Jan ’11 for our coverage realty companies, we
alter value of some projects – a couple of Napean Sea Road projects
and the planned phases at Lalbaug, where full payments are awaited.
This would impact our Sep ’11e NAV by 45%.
Valuation
Our Mar ’12e NAV is `100, and we introduce a 20% discount, arriving at a
price target of `80.


Nearly 50% of Kilachand House, the Napean Sea Road block and Lalbaug
have been acquired and paid for. We have taken the acquisition cost paid
vs. the earlier development schedule.
Mandwa: 130 acres have already been acquired and registered by the
company. Phase 1 launched covers more than 30 acres and 0.9m sqft of
saleable area. This project may be notified under the Township Act, in
which case the saleable area would increase.
For projects other than those announced the amount paid is +`1bn. We
have taken a 20% discount to the amount paid.


In the current state legislative assembly session, mention was made about
an increase in FSI for redevelopment projects. This is positive for the
company and would result in area going up at planned projects.
The state government also introduced at the present ready reckoner rates
stamp duty for transfer of tenancy rights. This would raise costs of
acquisition by ~3-4%.
Risks
 Political and policy uncertainty in the last few months have led to
delayed approvals. Further delays could prove detrimental.
 Slowdown in sales and pricing, more than estimated, would affect our NAV.

ORBIT - Share pledge a key monitorable : Edelweiss

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ORBIT CORPORATION
Share pledge a key monitorable

􀂃 Numbers ahead of estimates, but volumes drop
Orbit Corporation (Orbit) reported Q3FY11 revenue of INR 1,138 mn, higher than
our estimate of INR 960 mn, due to higher–than-expected bookings from Orbit
Haven (Napean Sea Road) and Orbit Terraces (Lower Parel) projects. Reported
PAT, of INR 231 mn, was higher than our estimate of INR 154 mn due to higher–
than-expected EBITDA margin and lower tax rate. Orbit sold ~62,000 sft in
Q3FY11 compared to 158,000 sft in Q2FY11 and 54,000 sft in Q1FY11, primarily
due to bump-up in sales from Mandwa project in Q2FY11 coming off in Q3FY11.

52-week loser: Orbit Corporation: Business Line

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52-week loser: Orbit Corporation

With a 58 per cent decline over the last one year, the stock of Mumbai realty player Orbit Corporation is among the top losers. The stock has fallen 23 per cent in the current month alone, beaten down by concerns over interest rate hikes and its impact on developers as well as home buyers.

Orbit Corporation Conference call update – All’s well; Buy:: Anand Rathi

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Orbit Corporation
Conference call update – All’s well; maintain Buy
 Maintain Buy. Orbit’s conference call updated 2QFY11 numbers
and current market dynamics. As per the Special Township Act, its
Mandwah project is likely to obtain 1 FSI and area to rise to 11m sqft
(our assumption: 3.4m sqft). The new Coastal Regulation Zone
(CRZ) policy (notification likely in Dec ’10) is also a positive for most
of its projects. We expect 2HFY11 to see better cash receivables than
1H. We maintain Buy with Sep ’11e price target of `181/share.

Housing Scam -CBI investigation: BUY on HDIL, Orbit and Puravankara: Ambit

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The CBI investigation: Market over-reaction creates good entry points into select realty stocks; Reiterate BUY on HDIL, Orbit and Puravankara

Event: A CBI investigation into bribe taking at the highest echelons of  Public Sectors Banks (Central Bank of India, Punjab National Bank , Bank of India) and public sector financial institutions (LIC, LIC Housing Finance) has led to several arrests of senior management personnel. Though media reports suggest that the main beneficiary of the largesee of bribed senior management has been the real estate sector, the CBI has not named any real estate company as an accused

The allegation relate to corporates availing General Corporate Loans through Financial Intemediaries (FIs). A specifc  FI, Money Matters,  has allegedly bribed senior officials in these public sector financial institutions and thereby procured loans for corporates. Besides sanctioning the loans, the bribed senior officials are also alleged to have passed on confidential competitive information to corporate through the named FI.

Orbit - Launches and sales continue; Mandhwa launched; Buy: Anand Rathi

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Orbit Corp.
Launches and sales continue; Mandhwa launched; Buy
 2QFY11 results. Orbit witnessed sales of `2.3bn for 0.16m sqft in
2QFY11 vs. 0.05m sqft in 1Q, mainly due to the launch at Mandhwa.
While revenue recognition was low for older projects nearing
completion, new launches have yet to start construction. We maintain
Buy with Sep ’11e target of `181/share.

 Revenue decline. Revenue fell 31% qoq for older projects nearing
completion and as work on new launches has yet to gather pace.
Margin improvement was due to higher realization. Slow money
recovery from new sales and higher outgo led to a slight increase in
net D/E, which now stands at 1x (0.61x excluding compulsory
convertible debentures-CCDs).

Orbit Corp:2Q disappoints, but Mandwah took off well: JM Financial

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2Q disappoints, but Mandwah took off well


 Pace of execution, financials below expectations: Orbit’s 2QFY11 financials
were below expectations; sales, EBITDA and net profit declined 31-36% to
`977mn, `303mn and `160mn respectively (down 18%, 21% and 20% QoQ).
Lower revenue booking this quarter was also partly on account of an
elongated monsoon, which affected construction activities across projects.
EBITDA margin was maintained at more or less the same level of 31-32% –
YoY and QoQ.

Orbit Corporation - steady quarter; gain momentum; Buy:: Edelweiss

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􀂃 Revenues and PAT below estimates
Orbit Corporation (Orbit) reported Q2FY11 net revenues of INR 977 mn (down
31% Y-o-Y and 18% Q-o-Q), lower than our estimate of INR 1,230 mn, as
project execution was hampered by heavy monsoon in Mumbai. Reported
EBITDA came in at INR 502 mn, with EBITDA margin of ~51% against 44% in
Q1FY11. Rise in margins was owing to a larger portion of revenues arising from
the high-margin ‘Orbit Haven’ and ‘Orbit Terraces’ projects. However, PAT at INR
160 mn (our estimate was INR 246 mn) and PAT margin of ~16% were flat Q-o-
Q.

Real Estate sector preview by Ambit for F2Q 2011 (September quarter)

Real Estate
 We expected our real estate coverage universe to report a mixed set of growth
numbers YoY while sequential performance is estimated to be muted across
companies. Good monsoons played a big impact on execution. We expect DLF
to report 9% YoY growth attributable to delay in approval of some key projects
and slower pace of leasing activity. Unitech is expected to deliver robust
growth of 59% on a smaller base though, sequentially, there could be a dip.
HDIL is expected to deliver 31% growth YoY and muted growth sequential.
TDR prices continue to remain robust though volume may get impacted due to
the monsoons. Orbit, with no new launches, is expected to report YoY decline
in sales of 13%.
 Inventory level is expected to reduce in the absence of new launches. With the
festive season up close, we would see a slew of new launches, most of this
however, already priced in the recent outperformance of the real estate stocks.
 EBIDTA margins continue to expand and companies focus on price led growth.
Net margins are expected to increase as deleveraging continues.
 We remain positive on the regional players and expect price correction of 10-
15% before recommending convincing re-rating. HDIL, Puravankara
Projects and Orbit Corporation remain our top picks in the sector.

Anand Rathi: Mumbai Property - The old order changeth, yielding place to new

Mumbai Property - The old order changeth, yielding place to new

Mumbai-based developers would continue witnessing high profits over the next 3-5 years given: i) low ready-inventory in the market, ii) high demand, iii) lower land cost vs high margins, iv) low execution due to regulations. Given the city’s unique geography and dense population (in slum areas, chawls), acquisitions via the rehabilitation/redevelopment mode will give access to prime land at low cost, with the older construction giving way to large areas for new projects (higher FSI). Although we expect slight correction in the next 3-4 months, we believe inflation-adjusted prices would remain stable in the long term(4-5 years). We have an Overweight stance on the sector.

n       Land limited, area unlimited. Due to its tight geography, Mumbai market has limited land; however, its old constructions viz. slums, chawls, cessed buildings are opening up for redevelopment (higher FSI) via slum rehab schemes (SRS) and urban renewal schemes (URS), thereby freeing up land for organised development. Such projects involve lower (and deferred) acquisition costs, leading to higher profits for developers.

n       Residential demand high. With an estimated 1.2% population CAGR over the next decade, demand would remain strong owing to Mumbai continuing to attract commercial activity and, hence, high immigration, for which +300m sqft of residential space will be required. Although we do not expect a major price correction, we believe prices will soften on account of affordability concerns in the near-term. Inflation-adjusted stable prices over the next few years are likely to lead to volumes, given healthy economic growth. We are positive on central suburbs and Bandra (E) and expect them to outperform vis-à-vis other micro-markets.

n       Stock ideas. We favour HDIL (on execution & location skills) and Ackruti City (on niche developments). We initiate coverage with Buy on DB Realty, Orbit Corp, Peninsula Land and Sunteck Realty.

n       Risks. i) Economic slowdown ii) Regulatory risks iii) De-coupling of MMR from Mumbai City.