Muted results, stellar launch

Transcription

1 INDUSTRY REAL ESTATE CMP (as on 03 Nov 2015) Rs 282 Target Price Rs 339 Nifty 8,061 Sensex 26,591 KEY STOCK DATA Bloomberg OBER IN No. of Shares (mn) 339 MCap (Rs bn) / ($ mn) 96/1,463 6m avg traded value (Rs mn) 83 STOCK PERFORMANCE (%) 52 Week high / low Rs 334/209 3M 6M 12M Absolute (%) Relative (%) SHAREHOLDING PATTERN (%) Promoters FIs & Local MFs 0.90 FIIs Public & Others 5.34 Source : BSE Parikshit Kandpal parikshitd.kandpal@hdfcsec.com Muted results, stellar launch ORL delivered a muted 2QFY16 financial performance, with revenue coming 7.3% below our estimates. This was mainly because of marginal sales dip in the ready-to-move-in project, Exquisite. ORL expects to sell residual units in Exquisite by 1QFY17E. Following the huge success of the Mulund launch, ORL delivered a stellar performance in Borivali. The new project witnessed robust bookings with 543 units (total 800+ units launched) sold within a week. We believe investor concerns on real estate slowdown are already in the price. ORL operates a well-balanced business model with residential and commercial segments contributing 56% and 42% to our NAV. In case of slow residential sale, cash flows from commercial projects lend visibility to earnings. We see multiple triggers panning out over the next four quarters with (1) Worli launch, (2) Subsequent phases of Mulund and Borivali, and (3) Goregaon Phase 3. We maintain BUY and SOTP of Rs 339/sh. RESULTS REVIEW 2QFY16 03 NOV 2015 Oberoi Realty Highlights of the quarter BUY Muted financial performance: Sale of 20 flats in Oberoi Exquisite (vs. last 3Q run-rate of 27 flats) resulted in subpar revenues. ORL expects to exit the project by 1QFY17E, as it ramps-up sales effort. Further, Oberoi Esquire project will hit revenue recognition during 3QFY16E. Stellar Borivali launch: ORL successfully launched its Borivali project and is planning subsequent phases of Goregaon, Mulund and Borivali over the next year. The Worli project will hit the market in early 1HFY17E. With pickup in construction, subsequent phases of these projects will see sales momentum. Glaxo Worli will be launched after the Oasis project is completed. Balance sheet strong, Net D/E at 0.01x: ORL has reduced net D/E from 0.1x to 0.01x. This gives enough headroom to acquire new land parcels. ORL is going slow on adding new office space, although it may have a small retail component in the Borivali project. Financial Summary (Rs mn)* 2QFY16 2QFY15 YoY (%) 1QFY16 QoQ (%) FY14 FY15 FY16E FY17E Net Sales 1,892 1, ,103 (10.0) 7,985 9,227 17,773 22,280 EBITDA 1,090 1,118 (2.5) 1,274 (14.4) 4,348 5,138 9,696 12,528 APAT (9.0) 3,111 3,171 5,956 8,087 Diluted EPS (Rs) P/E (x) EV / EBITDA (x) RoE (%) , * Consolidated HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters

2 ORL s revenue, EBIDTA and net profit grew 2%, (2.5%) and 2.7% YoY, below estimates by 7.3%, 8.2% and 8.9%, respectively EBIDTA margins contracted 263bps owing to 296bps increase in material expenses Lower contribution from high-realisation project Exquisite was the key swing factor Despite EBIDTA margins contraction, net profit margins improved by 26bps YoY on account of higher other income Pre-sales momentum remained muted in absence of new launches. Average realisation stood at Rs 18,492/sqft We expect pre-sales pickup from 2HFY16E as Borivali project has seen strong response with ~0.9mn sqft sold within 3 days of the launch Quarterly Financial Snapshot (Consolidated) Particulars 2QFY16 2QFY15 YoY (%) 1QFY16 QoQ (%) Net Sales 1,892 1, ,103 (10.0) Material Expenses (579) (513) 12.9 (598) (3.1) Employee Expenses (139) (131) 5.8 (137) 0.9 Other Operating Expenses (84) (93) (10.1) (93) (10.4) EBITDA 1,090 1,118 (2.5) 1,274 (14.4) Interest Cost (1) (16) (97.0) (0) Depreciation (122) (99) 23.9 (122) 0.3 Other Income PBT 1,084 1, ,207 (10.2) Tax (359) (336) 7.0 (411) (12.6) Net Profit (9.0) Margin Analysis (Consolidated) 2QFY16 2QFY15 YoY (%) 1QFY16 QoQ (%) Material Expenses Employee Expenses Other Operating Expenses (59) 4.4 (2) EBITDA (263) 60.6 (297) Tax Rate (92) Net Margin Pre Sales Trend Pre-sales trend 2QFY16 2QFY15 YoY (%) 1QFY16 QoQ (%) Sales Volume (mn sqft) (22.3) Sales Value (Rs mn) 1, ,708 (32.2) Average Realization (Rs/sqft) 18,492 23,961 (22.8) 21,178 (12.7) Page 2

3 FY16-17E pre-sales well diversified across macro-markets. Goregaon Garden City Phase 3 launch to drive FY17E volume Borivali to be the key volume driver for FY16E ORL has Rs 19.7bn of revenues yet to be recognised and Rs 16.3bn of cash to be collected from existing pre-sales Stellar Borivali launch; Mulund, Goregaon, Worli to see pickup After a successful Mulund project launch (~3.2mn sqft) in Jan-2015, ORL launched Borivali project (~3.5mn sqft) on 30 Oct Out of the 800+ units opened for sale, ORL secured sales booking of ~543. The pre-sales value stood at Rs 13.5bn encompassing ~0.9mn sqft in pre-sales area. The success of Borivali launch is attributable to ORL s strong brand positioning and lack of large (~25acres) gated community project with modern amenities in the macro-market. The ticket size of ~Rs 25mn found favour with buyers. ORL expects to break ground and start construction in Borivali from 4QFY16E and has already floated the EPC contract. The project will have 90% area for residential and 10% for retail. In totality, about 3,500 apartments will be developed and the project is likely to be completed by For the Mulund project, ORL has received commencement certificate and work has started at the site. The show flat is ready and higher floors will be opened for sale. ORL expects Mulund to start contributing to revenues from 2HFY17E. The Worli project show flat will be ready by Dec-15E and ORL has ~50 leads in advance stages. Goregaon Phase 3 will be launched in 1QFY17E after selling of residual Exquisite flats. Pre-Sales Trend Project Name FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E Goregaon - Garden City JVLR - Prisma, Maxima Worli - Oasis Residential Others Mulund - Exotica Oberoi Borivali Area sold (msf) Project Area (msf) Area sold as of 1QFY16 (mnsf) Inventory as of 1QFY16 (mnsf) Sales Value (Rs mn) Avg. realisation (Rs/sqft) PoCM (%) Balance Revenues to be recognised (Rs mn) Cash to be received (Rs mn) Oberoi Esquire ,732 13,739 <20% 14,732 5,555 Oberoi Exquisite ,275 15, % 766 Oberoi Oasis ,824 28,563 <20% 3,824 1,228 Oberoi Priviera , % 0 Oberoi Prisma ,045 17,694 41% 1,202 1,039 Oberoi Eternia ,249 14,756 <20% 6,249 4,451 Oberoi Enigma ,087 14,654 <20% 4,087 3,264 Total ,305 15,579 19,757 16,303 Page 3

4 We expect ORL to deliver 18.7% pre-sales FY15-17E CAGR. Realisation to largely remain muted We have estimated 59.7% EPS CAGR over FY15-17E Key assumptions and estimates Summary Of Key Assumptions And Estimates Estimates Growth (%) Comments FY15 FY16E FY17E FY16E FY17E Volume assumptions Residential (mn sqft) FY16E volume growth largely driven by Borivali launch, FY17E by subsequent phase of Mulund, Borivali, Goregaon Average rate (Rs/sqft) 17,107 17,322 18, With high unaffordability and new supply, we expect the realisation to remain muted Sales value (Rs mn) 17,695 19,124 24, % FY15-17E sales CAGR on low base largely contributed by new launches Rental Income Area for lease (msf) Addition of Commerz -II results in increased lease area Average occupancy (%) , Occupancy to gradually pickup over FY16-17E owing to slower leasing momentum in Commerz - II Average Rental Lease rentals growth to be muted, new lease rentals (1.3) 2.3 (Rs/sqft/month) to be in line with re-negotiated lease rentals Rental income (Rs mn) 1,469 1,665 2, % FY15-17E lease rentals revenue CAGR on back of incremental leasing in Commerz - II Earnings forecast Sales real estate (Rs mn) 6,541 15,015 18, % revenue CAGR for FY15-17E, Esquire, Prisma, Worli and Exquisite key revenue drivers Income from hospitality 1,217 1,092 1,856 (10.2) 69.9 Addition of Worli Hotel to drive 23.5% FY15-17E income CAGR Annuity assets 1,469 1,665 2, Mix of volume and lease rental renewal to drive 16.8% FY15-17E income CAGR. Commerz-II lease pickup key volume driver Total 9,227 17,773 22, % revenue CAGR for FY15-17E EBIDTA (Rs mn) 5,138 9,696 12, % CAGR for FY15-17E Margin contraction during FY16E as Esquire starts EBIDTA Margin (%) (112.7) contributing to revenues with lower realization vs. Exquisite Net interest expense* (90.5) PAT (Rs mn) 3,171 5,956 8, % CAGR for FY15-17E PAT Margin (%) (85.7) Change in PAT margins in line with EBIDTA margins EPS (Rs) % CAGR for FY15-17E Page 4

5 Location Residential Gross NAV (Rs mn) Rs/ Share Goregaon 16, JVLR 8, Worli - Residential 9, Mulund 14, Borivali 16, Total Residential 65, Hotels Westin Hotel 4, Worli Hotel 3,051 9 Total Hotel 7, Commercial Commerz-All Phases 24, Oberoi Mall 8, Worli Commercial 3, Total Commercial 36, Grand Total 108, Source: Company, HDFC sec Inst Research Valuation NAV based target of Rs339/share SOTP Valuation We have adopted DCF methodology to arrive at ORL s NAV/share. We value the residential real estate business at Rs192/share, hotels at Rs22/share, commercial annuity assets at Rs107/share, social infrastructure at Rs9/share, other assets at Rs5/share and net debt at Rs3 to arrive at total SOTP valuation of Rs339/share for the company. We don t ascribe any NAV discount to ORL as we have only valued the projects that have visibility over the next five years. For land bank beyond five years we ascribe 1x P/BV for invested equity. Sum Of The Parts Rs mn Rs/share Comments Gross NAV Residential 65, NAV based on the methodology discussed Gross NAV Hotels 7, x FY17E EV/EBIDTA Gross NAV Commercial 36, NAV based on the methodology discussed Social Infra 3,134 9 discounting at 11% cap rate viz. school, hospital etc Other Assets 1,785 5 investments in other projects at 1x P/BV,viz. Sangam city, Juhu hotel etc Less: Net Debt (1,174) (3) net debt end FY16E NAV 115, Real estate development NAV calculation methodology We have divided ORL s entire land bank into residential projects (based on the information given by the company). We have arrived at the sale price/sqft and the anticipated sales volumes for each project based on our discussions with industry experts. We have deducted the cost of construction based on our assumed cost estimates, which have been arrived at after discussions with experts. We have further deducted marketing and other costs which have been assumed at 5% of the sales revenue. We have then deducted income tax based on the tax applicable for the project. The resultant cash inflows at the project level have been discounted based on WACC of 14% (cost of equity 14% based on beta of 1x & debt/equity ratio of 0.2x). All the project level NAVs have then been summed up to arrive at the NAV of the company. For commercial office, we have discounted rentals using 14% WACC for the forecasted period and terminal value using the cap rate of 11%. Social infrastructure created by ORL viz. school, hospital, etc, have been discounted using cap rate of 11%. Other assets have been valued at 1x P/BV of invested equity. From the NAV, we have deducted the net debt as of FY16E to arrive at the final valuation of the company. Page 5

6 Our base property price assumption is at a 0-5% premium to the current prevailing prices on account of ORL s brand pull Key valuation assumptions In the exhibit below, we highlight our sales and cost inflation forecasts. We expect property price appreciation in line with WPI inflation, i.e. 5% and cost of construction to grow at 6%. We forecast other costs including marketing, SGA and employee costs at 5% of sales. Base case assumptions (%) Discount rate 14 Annual rate of inflation-sales price 5 Annual rate of inflation-cost of construction 6 Other costs marketing, SGA, employee cost (as % of sales) 5 Tax rate (%) 33 In the exhibit below, we highlight our sale price and construction cost forecasts. Our pricing assumptions are moderate and at a 0-5% premium to the current prevailing prices on account of ORL 15-20% brand premium vs. peer. Base property price and construction cost assumptions Location Prices Cost Rs/sq ft Rs/sq ft Goregaon 15,000 5,500 Worli 35,000 8,500 Mulund 12,500 5,000 JVLR 15,000 5,000 Borivali 11,500 4,500 Page 6

7 1% increase in average base sale price impacts our NAV positively by 3% Every 100bps increase in sale price inflation impacts our NAV positively by 5.1% 100bps increase in cost inputs decreases our NAV by 2.7% 100bps increase in discounting rate impacts our NAV negatively by 4.4% NAV sensitivity analysis Sensitivity to our assumption of property price Obviously, our model is sensitive to changes in the assumptions regarding property prices. For every 1% change in the base property prices, the NAV will change by approximately 3%. NAV Sensitivity To Change In Average Sale Price % change in sale price (10) (5) NAV/share (Rs) Change in NAV (%) (31.0) (15.9) Sensitivity of NAV to changes in sale inflation In our base case, we have assumed annual sale price inflation of 5%. For every 100bps increase in the annual sale price inflation, the NAV will increase by approximately 5%. NAV Sensitivity To Change In Sales Inflation Sales inflation rates (%) NAV/share (Rs) Change in NAV (%) (9.3) (4.7) Sensitivity of NAV to changes in cost inflation In our base case, we have assumed cost inflation to be 6%. For every 100bps increase in construction cost inflation, the NAV will change by approximately 2.7%. NAV Sensitivity To Change In Cost Inflation Cost inflation rates (%) NAV/share (Rs) Change in NAV (%) (2.7) (5.4) The combined impact of a 100bps increase in sale price inflation and cost inflation will be a NAV increase of 2.4%. Sensitivity of NAV to changes in discount rate In our base case, we have assumed a discount rate of 14%. For every 100bps increase in the discount rate, the NAV would fall by 4.4%. NAV Sensitivity To Change In WACC WACC rates (%) NAV/share (Rs) Change in NAV (%) (4.4) (9.9) Page 7

8 Income Statement (Consolidated) Y/E March (Rs mn) FY13 FY14 FY15 FY16E FY17E Net Sales 10,476 7,985 9,227 17,773 22,280 Growth (%) 27.0 (23.8) Material Expenses 3,715 2,897 3,148 7,054 8,582 Employee Expenses Other Operating Expenses EBIDTA 6,121 4,348 5,138 9,696 12,528 EBIDTA (%) EBIDTA Growth (%) (0.3) (6.8) 2.3 (2.0) 3.1 Other Income Depreciation EBIT 6,835 4,647 4,910 9,273 12,480 Interest PBT 6,831 4,644 4,892 9,255 12,478 Tax 1,783 1,533 1,721 3,298 4,390 PAT 5,049 3,111 3,171 5,956 8,087 Minority Interest EO items (net of tax) APAT 5,049 3,111 3,171 5,956 8,087 APAT Growth (%) 9.0 (38.4) EPS EPS Growth (%) 9.1 (38.4) Balance Sheet (Consolidated) Y/E March (Rs mn) FY13 FY14 FY15 FY16E FY17E SOURCES OF FUNDS Share Capital 3,282 3,282 3,284 3,394 3,394 Reserves 38,339 40,682 43,060 51,802 59,416 Total Shareholders Funds 41,621 43,964 46,344 55,196 62,810 Minority Interest Long Term Debt ,016 4,016 5,000 Short Term Debt Total Debt ,016 4,016 5,000 Deferred Taxes Long Term Provisions & Others TOTAL SOURCES OF FUNDS 41,769 44,944 55,602 59,454 68,052 APPLICATION OF FUNDS Net Block 6,867 6,658 10,148 11,267 12,442 CWIP 3,848 4, Goodwill 2,654 2,654 2,654 2,654 2,654 Investments, LT Loans & Advs Inventories 12,448 16,491 34,817 35,772 38,649 Debtors ,461 1,576 Cash & Equivalents 10,725 4,997 2,937 5,190 8,767 ST Loans & Advances, Others 15,827 18,375 19,598 20,798 22,298 Total Current Assets 39,522 40,725 58,180 63,220 71,290 Creditors 10,331 9,138 14,758 17,390 17,356 Other Current Liabilities & Provns Total Current Liabilities 11,121 9,926 15,599 18,300 18,334 Net Current Assets 28,401 30,799 42,582 44,920 52,956 Misc Expenses & Others TOTAL APPLICATION OF FUNDS 41,769 44,944 55,602 59,454 68,052 Page 8

9 Cash Flow (Consolidated) Y/E March (Rs mn) FY13 FY14 FY15 FY16E FY17E PBT before minority 6,831 4,644 4,892 9,255 12,478 Non-operating income & EO items (983) (578) (178) (208) (526) Taxes (1,698) (1,412) (1,531) (3,298) (4,390) Interest expenses Depreciation Working Capital Change (3,016) (8,100) (14,170) (86) (4,458) OPERATING CASH FLOW ( a ) 1,419 (5,173) (9,712) 6,312 3,679 Capex (1,181) (482) 360 (2,145) (1,138) Free cash flow (FCF) 238 (5,655) (9,352) 4,167 2,542 Investments Others (7,145) 7,542 (955) INVESTING CASH FLOW ( b ) (8,325) 7,149 (551) (1,937) (611) Share capital Issuance ,245 0 Debt Issuance ,255 (5,000) 984 Interest expenses (0) (0) (552) (19) (2) Dividend (763) (768) (768) (348) (473) FINANCING CASH FLOW ( c ) (763) (8) 6,936 (2,122) 509 NET CASH FLOW (a+b+c) (7,669) 1,968 (3,327) 2,253 3,577 Non-operating and EO items Closing Cash & Equivalents 5,265 12,693 1,616 5,190 8,767 Key Ratios (Consolidated) FY13 FY14 FY15 FY16E FY17E PROFITABILITY (%) GPM EBITDA Margin APAT Margin RoE Core RoCE RoCE EFFICIENCY Tax Rate (%) Asset Turnover (x) Inventory (days) , Debtors (days) Payables (days) Cash Conversion Cycle (days) Debt/EBITDA (x) Net D/E (1.8) (1.0) 1.2 (0.1) (0.3) Interest Coverage 1,899 1, ,099 PER SHARE DATA EPS (Rs/sh) CEPS (Rs/sh) DPS (Rs/sh) BV (Rs/sh) VALUATION P/E P/BV EV/EBITDA OCF/EV (%) 0.0 (0.1) (0.1) FCF/EV (%) 0.3 (6.2) (9.2) Dividend Yield (%) Page 9

10 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 OBEROI REALTY : RESULTS REVIEW 2QFY16 RECOMMENDATION HISTORY Oberoi Realty TP Date CMP Reco Target 12-Jan BUY Jan BUY Jul BUY Nov BUY Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period Page 10

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