Buy Oberoi Realty; target of Rs 310: Motilal Oswal

“Oberoi Realty (ORL) has reported 4QFY11 numbers below our estimates. EBITDA grew 41.5% YoY to Rs 1.4 billion (v/s estimate Rs 2.1 billion), while EBITDA margin stood at 54.3% (v/s 61.9% in 3QFY11). The primary reason for decline in EBITDA margin is change in revenue mix with higher contribution from hotel project which enjoys lower EBITDA margin (35% in 4QFY11).”

“Revenue grew 64% YoY to Rs 2.7 billion (v/s estimate Rs 3.8 billion). The variance from estimate is largely due to lower sales volume in revenue contributing projects (Exquisite and Splendor Grande). PAT grew 30% YoY to Rs 1.4 billion (v/s estimate Rs 1.8 billion). ORL’s FY11 revenue grew 27% to Rs 10 billion, EBITDA grew 23.5% to Rs 5.8 billion, PAT grew 13% to Rs 5.2 billion. Revenue from its annuity projects (commercial, retail and hospitality) stood at Rs 1.8 billion, accounting for ~18% of revenue. ORL has launched the 2nd phase of Exquisite project, christened Esquire (~2msf, 846 units) at a base sale price (BSP) of Rs 10,000 (~15% discount to Exquisite BSP of Rs 11,500/sf) during 4QFY11. Esquire drew strong response, selling ~0.3msf (Rs 3.2 billion) within a month of its launch. With this, the company managed to achieve total sales of 0.7msf during FY11 (v/s 0.4msf during 9MFY11). Launch plan of Mulund project can be delayed due to longer than expected time for approvals from Ministry of Environment and Forest (MOEF), while Worli residential project is planned to launch in 2QFY12. ORL has handed over ~1,300 units at Splendor during 4QFY11. It has guided for a delivery timeline of FY12 for Commerz II and FY13 for Exquisite.”

“We expect ORL to post 47% EPS CAGR over FY11-13. The stock is trading at 12.6x FY12E EPS of Rs 20, 7.3x FY13E EPS of Rs 33.7 and ~18% discount to our estimated NAV of Rs 310. We expect ORL to trade at least at par to NAV due to (1) premium brand equity, (2) strong near term cash flow visibility, and (3) value unlocking potential of huge surplus cash of ~Rs 15 billion. Maintain Buy for a target price of Rs 310,” says Motilal Oswal research report.

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