Buy Orbit Corporation; target of Rs 70: PINC Research

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Buy Orbit Corporation; target of Rs 70: PINC Research

PINC Research is bullish on Orbit Corporation and has recommended buy rating on the stock with a target of Rs 70 in its February 10, 2012 research report.

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PINC Research is bullish on Orbit Corporation and has recommended buy rating on the stock with a target of Rs 70 in its February 10, 2012 research report.

"Orbit Corp's (ORB) net sales for Q3FY12 fell 31% QoQ to Rs715mn and 11% below our estimate of Rs800mn. EBITDA margins stood at 37.4% and improved by 1191bps QoQ as margins were low in Q2FY12 due to contribution from Ocean Parque (Rs500mn). Interest cost increased from Rs284mn in Q2FY12 to Rs327mn in Q3FY12. PAT at Rs33mn (PINCe-Rs38mn) was down 21% QoQ. We maintain 'BUY' recommendation on the stock with an increased TP of Rs70 from Rs50 earlier primarily on (1) improvement in cash flow through better sales booking due to expected interest rate softening, (2) launch of Santacruz (Orbit Grandeur) and Napean Sea road project which will lead to further improvement in cash flow visibility and (3) improvement in collections from projects like WTC, Ocean Parque) to help reduce debt."

"ORB reported revenues of Rs715mn; down 31% QoQ. Revenue decreased QoQ as no revenue was recognized from Ocean Parque which contributed Rs500mn in Q2F12. Revenue was recognized from Napean Sea Road (Orbit Haven, Villa Orbit Annex), Lower Parel (Orbit Terraces, Orbit Grand) and Andheri Saki Naka (Orbit Residency Park). Sales volume during the quarter stood at 32,291sf; sharply up from 9,034msf done during the previous quarter. Spike in sales volume was primarily from Andheri Residency project. Going ahead we expect further improvement in sales with revival in economic activity and cut in interest rate. With three project launches expected in H1FY13, ORB is likely to be one of the key beneficiaries. EBITDA margins stood at 37.4% and improved by 1,191bps QoQ. Q2FY12 margins were lower on account of sale in Ocean Parque. PAT at Rs33mn fell 21% QoQ. Interest costs continue to stay high and remain a concern for ORB. Interest cost (capitalized & expensed) increased from Rs284mn in Q2FY12 to Rs327mn in Q3FY12 due to higher interest rates and increasing debt. Gross debt increased to Rs9,567mn as of Dec'11 from Rs8,919mn in Sep'11. The current net D/E (including CCD) stands at 0.81x (unchanged from Q2FY12). Going forward, the key focus of the company would be to reduce debt through cash collection from WTC, Ocean Parque and through key launches in Napean Sea Road and Santacruz."

"With expected softening of interest rates, the realty market is likely to gain sales momentum. Focus on key launches and collection from Ocean Parquee and WTC in next 9-12 months will help ORB generate enough cash flows to service its debt and reduce its debt burden. We thus continue to maintain our 'BUY' recommendation on the stock with a revised TP or Rs70 (Rs50 earlier) due to improved visibility in project launches and signs of improvement in the Mumbai real estate market," says PINC Research report. 

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To read the full report click on the attachment