New launches provide volume visibility… • Oberoi Realty :: ICICI Securities

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New launches provide volume visibility…
• Oberoi Realty (ORL) reported consolidated net sales of | 217.1 crore
(up 27.3% YoY) led by 48.7% YoY growth in revenues from real
estate projects
• The EBITDA margin increased 565 bps YoY to 58.3%. PAT came in at
| 79.2 crore (16.4% YoY growth) mainly due to strong topline show
• Sales volumes surprised positively and came in at 1,47,941 square
feet (sq ft) (vs. our expectation of 83,000 sq ft) led mainly by sales
volume of 72,711 sq ft from the Oberoi Prisma project and the
remaining from the Oberoi Exquisite & Esquire projects
Expecting mammoth sales volume in coming years…
We anticipate sales volume will pick up significantly on the back of a slew
of launches in Q4FY15 and H1FY16. The company launched two luxury
residential projects in Mumbai’s suburb Mulund. Both projects viz.
Enigma and Eternia, are spread across nine acres and would collectively
be ~3.2 mn sq ft in size. In <5 able="" days="" orl="" p="" sell="" to="" was="">apartments worth ~| 850 crore. Moreover, the company has also
launched the Prisma project at JVLR in December 2014 and sold ~27% of
the total area of the project as on December 31, 2014. Going ahead, ORL
is looking to launch its other large projects such as Worli project (1.7 mn
sq ft) and Borivali project (~4.5 mn sq ft) in FY16. With these launches,
we anticipate ORL’s sales volume will jump from 0.3 mn sq ft in FY14 to
2.5 mn sq ft in FY17E. Consequently, we anticipate topline and PAT will
grow at a CAGR of 60.5% and 54.5%, respectively, over FY14-16E.
Prudent land acquisition strategy resulting in 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
have kept its balance sheet healthy, a key differentiator vis-à-vis its
competitors. Currently, the real estate industry is seeing a tough phase
due to subdued sales volumes, particularly in NCR, Mumbai markets. On
the other hand, majority of the players’ balance sheets are 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 provides scope for land acquisition at better terms, going ahead.
Furthermore, ORL is judiciously looking for new land opportunities from
cash flow generated from recently launched Mulund and Prisma projects.
Annuity & hospitality business – icing on the cake…
Currently, ORL has three operational assets: Oberoi Mall (0.6 mn sq ft –
contributing | 70.5 crore in 9MFY15); Commerz-I (0.4 mn sq ft–
contributing | 35.6 crore in 9MFY15) and five star Westin Hotel (269
rooms – contributing | 89.1 crore in 9MFY15). Beside this, ORL has also
completed Commerz-II Phase I (0.7 mn sq ft) and concluded the first
transaction of leasing ~50,000 sq ft. Hence, we expect ORL’s rental
income to pick up from ~| 135 crore in FY14 to ~| 164 crore in FY17E.
Quality player at attractive valuation; maintain BUY…
ORL is our top pick in the sector given the quality of the land bank,
healthy balance sheet, management bandwidth to execute the projects
and an anticipated pick-up in the sales volume with new launches such as
Mulund, Borivali and Worli. Key risk: A further delay in launches. We have
now rolled over our valuation to FY17E and maintained our BUY
recommendation with a revised target price of | 333 per share

LINK
http://content.icicidirect.com/mailimages/IDirect_OberoiRealty_Q3FY15.pdf