Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Oberoi Realty
Overweight
OEBO.BO, OBER IN
Annual report analyses: Can use a slowdown
Oberoi’s annual report review provides two interesting highlights. 1.
Management is guiding towards a cautious FY12 outlook given a weak macro
and rising rate scenario. In that context, the company's strong financial
position (Rs14.6B net cash) should provide some leverage to make accretive
land acquisitions. Likely buyouts will be focused around Redevelopment /SRA
or open plot (mill acquisitions) in Mumbai. 2. The company has said that over
the medium term it will be open to taking some leverage (albeit a prudent low
level) wherein it can securitize its annuity rentals. In this context a slowdown
(albeit a short one) may actually prove beneficial for the company longer term
given low cost of land holding in existing portfolio and possibility of making
accretive buys. Policy overhang on Mumbai’s RE market too is getting
removed with the government over the course of last two months clarifying a
number of development rules. This helps in removing un- certainties on FSI
etc. helping in better projection of returns. OBER’s valuations (10x FY13 P/E,
1.7x FY13 P/B) while at a premium to the sector will likely remain given a
superior RoEs (low cost land), city centric prime portfolio, strong balance
sheet. However, macro concerns (volume slowdown, mortgage rate hikes)
could cap the stock performance in the near term, in our view.
Key highlights of FY11 operations:
FY11 bookings at Rs9.2B were down 25% Y/Y primarily due to delay
in new project launches (Mulund/Worli) which are now pushed to
FY12- FY11 presales were driven by sales in on-going township projects
(Goregaon / Andheri). Overall, Oberoi has a sales order book of Rs27B, of
which it is yet to recognize Rs11.2B as revenues and receive cash flows of
Rs8B. Oberoi’s launches in Worli and Mulund have been delayed vs.
guidance and this needs to correct for the company to meet its earnings
forecast going ahead.
Next step jump in rentals likely in FY13/14 – Co’s FY11 annuity income
increased to Rs1.2B (vs. Rs850M in FY10) driven by higher occupancy and
hotel commencement at Goregaon. The big jump in annuities hereon will
likely be in FY13/14 when work on under construction office space (~3msf)
finishes. At the moment Mumbai’s office market is witnessing oversupply
but given company’s marquee assets and suburban office increasingly
gaining share in incremental leasing, co’s assets should see decent demand.
FY11 Cash flows
Oberoi generated operational cash flows of Rs2.4B in FY11. This has primarily been
used for capex of commercial assets (Rs1.8B) and security deposits (Rs400MM) for
new land acquisition. Commercial assets under construction include (a) Commerz II -
office building in Goregaon Garden City project and (b) Prisma office building in
Splendor (Andheri).
Net cash increased by Rs10.2B in FY11 to Rs14.6B. This was aided by Rs10.3B of
equity raising (IPO) done in Nov-10. The cash will primarily be used for land
acquisition going ahead. In addition to this, company indicated that they are open to
raising debt by securitizing rental cash flows to fund growth opportunities. This can
result additional Rs6-7B of cash flows (6X rental income), on our estimates.
Table 1: Oberoi - FY11 Cash Flows (JPM calculations)
Rs MM FY11
Cash inflow
Inflow from project sales 6,793
Lease income 1,121
Hospitality revenue 972
Other income 626
Total Inflow 9,511
Construction outflow (resi) (4,705)
Hospitality/Office operating costs (609)
SG&A (270)
Employee expenses (153)
Taxes (1,399)
Operating cash flow 2,374
Leasing/Hospitality capex (1,746)
Equity raising (IPO money adjusted for issue expenses) 9,917
Dividend Paid (71)
Security deposits for land and others (251)
Net Cash flow 10,224
Change in net debt 10,224
Source: Company reports, JPMorgan Estimates
Table 2: Oberoi- FY11 net cash
Rs MM
Cash and bank balances 13,993
Liquid funds 650
Cash and liquid funds 14,643
Debt 0.1
Net Cash 14,643
Change in net cash in FY11 (10,224)
Money raised from IPO in FY11 (adjusted for issue expenses) 9,917
FCF 307
Source: Company
Revenue break up
FY11 revenues at Rs9.96B were up 26% Y/Y. Development business accounted for
80% of overall revenues; while the remaining was accounted by annuity income from
commercial properties/hotel/property management.
Revenue from project sales increased by 16% Y/Y aided by revenue recognition
from sales in ongoing township projects. Key projects contributing to the revenues
include Oberoi Splendor (55% of revenues) and Exquisite (35% of revenue). Work
on Oberoi Exquisite is currently underway; while Oberoi Splendor is already
completed and handover is expected to happen in FY12.
Annuity stream in FY11 included (a) Rental income was Rs1.1B (Rs834MM); (b)
hospitality revenues of Rs671MM (16% margin in FY11) and (c) property
management and others (Rs300MM).
Table 3: Oberoi - Revenue break up
Rs MM, Year end March FY10 FY11E
Income from projects 6,781 7,868
Rent (Oberoi Mall + Commerz I) 834 1,121
Hospitality income - 671
Other operating income (includes prop management) 284 300
Sales 7,899 9,960
Y/Y growth 86% 26%
Source: Company
Table 4: Oberoi - FY11 development revenue break up
Rs MM
Oberoi Exquisite, Goregaon 2,595
Oberoi Splendor, Andheri 4,282
Oberoi Springs, Andheri W 596
Splendor Grande, Andheri 293
Oberoi Seven, Goregaon 90
Source: Company reports
Annuity income provides steady cash flows
FY11 rental income increased to Rs1.1B (from Rs800M in FY10) driven by higher
occupancies in Commerz I. In addition to this, Westin hotel became operational in
FY11 (May-10) and has witnessed decent operational trends in terms of
occupancies/ARR. Overall company generated Rs1.2B of annuity income from these
investment properties (adjusted for operating costs). Rental income is expected to
improve in FY12/13 driven by-
(a) Improved performance of Westin hotel which became operational in
May-10. The hotel has seen margins improving to 35% in Q4 against 16%
for full year. Occupancy/ARR trends for the hotel remain quite healthy
(>75% in Q4, ARR of Rs7.7K).
(b) Rental revisions at Oberoi Mall – the mall completed 3 years in FY11
and is likely to see rental revisions under standard lease agreements.
(c) Higher occupancy at Commerz I - Currently the office is operating at 75%
occupancy
(d) New pipeline – Oberoi has two commercial properties under construction
(~3msf). Work on these projects is progressing well; however there is no
prelease/sales achieved on these assets as yet. This could provide a
meaningful boost to annuity stream from FY13 onwards.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Oberoi Realty
Overweight
OEBO.BO, OBER IN
Annual report analyses: Can use a slowdown
Oberoi’s annual report review provides two interesting highlights. 1.
Management is guiding towards a cautious FY12 outlook given a weak macro
and rising rate scenario. In that context, the company's strong financial
position (Rs14.6B net cash) should provide some leverage to make accretive
land acquisitions. Likely buyouts will be focused around Redevelopment /SRA
or open plot (mill acquisitions) in Mumbai. 2. The company has said that over
the medium term it will be open to taking some leverage (albeit a prudent low
level) wherein it can securitize its annuity rentals. In this context a slowdown
(albeit a short one) may actually prove beneficial for the company longer term
given low cost of land holding in existing portfolio and possibility of making
accretive buys. Policy overhang on Mumbai’s RE market too is getting
removed with the government over the course of last two months clarifying a
number of development rules. This helps in removing un- certainties on FSI
etc. helping in better projection of returns. OBER’s valuations (10x FY13 P/E,
1.7x FY13 P/B) while at a premium to the sector will likely remain given a
superior RoEs (low cost land), city centric prime portfolio, strong balance
sheet. However, macro concerns (volume slowdown, mortgage rate hikes)
could cap the stock performance in the near term, in our view.
Key highlights of FY11 operations:
FY11 bookings at Rs9.2B were down 25% Y/Y primarily due to delay
in new project launches (Mulund/Worli) which are now pushed to
FY12- FY11 presales were driven by sales in on-going township projects
(Goregaon / Andheri). Overall, Oberoi has a sales order book of Rs27B, of
which it is yet to recognize Rs11.2B as revenues and receive cash flows of
Rs8B. Oberoi’s launches in Worli and Mulund have been delayed vs.
guidance and this needs to correct for the company to meet its earnings
forecast going ahead.
Next step jump in rentals likely in FY13/14 – Co’s FY11 annuity income
increased to Rs1.2B (vs. Rs850M in FY10) driven by higher occupancy and
hotel commencement at Goregaon. The big jump in annuities hereon will
likely be in FY13/14 when work on under construction office space (~3msf)
finishes. At the moment Mumbai’s office market is witnessing oversupply
but given company’s marquee assets and suburban office increasingly
gaining share in incremental leasing, co’s assets should see decent demand.
FY11 Cash flows
Oberoi generated operational cash flows of Rs2.4B in FY11. This has primarily been
used for capex of commercial assets (Rs1.8B) and security deposits (Rs400MM) for
new land acquisition. Commercial assets under construction include (a) Commerz II -
office building in Goregaon Garden City project and (b) Prisma office building in
Splendor (Andheri).
Net cash increased by Rs10.2B in FY11 to Rs14.6B. This was aided by Rs10.3B of
equity raising (IPO) done in Nov-10. The cash will primarily be used for land
acquisition going ahead. In addition to this, company indicated that they are open to
raising debt by securitizing rental cash flows to fund growth opportunities. This can
result additional Rs6-7B of cash flows (6X rental income), on our estimates.
Table 1: Oberoi - FY11 Cash Flows (JPM calculations)
Rs MM FY11
Cash inflow
Inflow from project sales 6,793
Lease income 1,121
Hospitality revenue 972
Other income 626
Total Inflow 9,511
Construction outflow (resi) (4,705)
Hospitality/Office operating costs (609)
SG&A (270)
Employee expenses (153)
Taxes (1,399)
Operating cash flow 2,374
Leasing/Hospitality capex (1,746)
Equity raising (IPO money adjusted for issue expenses) 9,917
Dividend Paid (71)
Security deposits for land and others (251)
Net Cash flow 10,224
Change in net debt 10,224
Source: Company reports, JPMorgan Estimates
Table 2: Oberoi- FY11 net cash
Rs MM
Cash and bank balances 13,993
Liquid funds 650
Cash and liquid funds 14,643
Debt 0.1
Net Cash 14,643
Change in net cash in FY11 (10,224)
Money raised from IPO in FY11 (adjusted for issue expenses) 9,917
FCF 307
Source: Company
Revenue break up
FY11 revenues at Rs9.96B were up 26% Y/Y. Development business accounted for
80% of overall revenues; while the remaining was accounted by annuity income from
commercial properties/hotel/property management.
Revenue from project sales increased by 16% Y/Y aided by revenue recognition
from sales in ongoing township projects. Key projects contributing to the revenues
include Oberoi Splendor (55% of revenues) and Exquisite (35% of revenue). Work
on Oberoi Exquisite is currently underway; while Oberoi Splendor is already
completed and handover is expected to happen in FY12.
Annuity stream in FY11 included (a) Rental income was Rs1.1B (Rs834MM); (b)
hospitality revenues of Rs671MM (16% margin in FY11) and (c) property
management and others (Rs300MM).
Table 3: Oberoi - Revenue break up
Rs MM, Year end March FY10 FY11E
Income from projects 6,781 7,868
Rent (Oberoi Mall + Commerz I) 834 1,121
Hospitality income - 671
Other operating income (includes prop management) 284 300
Sales 7,899 9,960
Y/Y growth 86% 26%
Source: Company
Table 4: Oberoi - FY11 development revenue break up
Rs MM
Oberoi Exquisite, Goregaon 2,595
Oberoi Splendor, Andheri 4,282
Oberoi Springs, Andheri W 596
Splendor Grande, Andheri 293
Oberoi Seven, Goregaon 90
Source: Company reports
Annuity income provides steady cash flows
FY11 rental income increased to Rs1.1B (from Rs800M in FY10) driven by higher
occupancies in Commerz I. In addition to this, Westin hotel became operational in
FY11 (May-10) and has witnessed decent operational trends in terms of
occupancies/ARR. Overall company generated Rs1.2B of annuity income from these
investment properties (adjusted for operating costs). Rental income is expected to
improve in FY12/13 driven by-
(a) Improved performance of Westin hotel which became operational in
May-10. The hotel has seen margins improving to 35% in Q4 against 16%
for full year. Occupancy/ARR trends for the hotel remain quite healthy
(>75% in Q4, ARR of Rs7.7K).
(b) Rental revisions at Oberoi Mall – the mall completed 3 years in FY11
and is likely to see rental revisions under standard lease agreements.
(c) Higher occupancy at Commerz I - Currently the office is operating at 75%
occupancy
(d) New pipeline – Oberoi has two commercial properties under construction
(~3msf). Work on these projects is progressing well; however there is no
prelease/sales achieved on these assets as yet. This could provide a
meaningful boost to annuity stream from FY13 onwards.
No comments:
Post a Comment