Oberoi Realty - Q2FY14 Results: Worli & Mulund launches: the key triggers - Phillip Capital India

Oberoi Realty's Q2FY14 results were below with our estimates. Revenues de-grew by 28% (QoQ) largely on account of delay in execution of Esquire project and lack of new launches. Other projects i.e. Splendor grander and Exquisite are nearly completion and have left with fewer inventories for sale. We estimate that the company would start recognizing revenue with respect to Esquire project only from Q4FY14 onwards. The Company has unrecognized revenue of Rs 18bn as of September 2013 (largely pertaining to Esquire). On margins front, adjusted for one-time cost of ~Rs 260mn towards approval under new DCR regime for Oberoi Splendor Grande, margins were in line with estimates. Going forward, we believe that the launch of Worli project (Oasis) and approval of Mulund would be crucial for sustaining the revenues and margins.

Residential disappoints annuity biz. picks-up: Revenue from residential projects was at Rs1.1bn de-grew by 21% (QoQ) on account of delay in execution of Esquire project while other existing projects recorded decent construction activity i.e. Exquisite (POC 83% as against 78% in Q1FY14) and Splendor Grande projects (POC 100% as against 98% in Q1FY14). During the quarter, company registered decreased in square footage sold largely on account of de-growth witnessed in Oberoi Esquire (down 9%, QoQ ) and Oberoi Exquisite(down 26%, QoQ). Blended Realizations improved sequentially at Rs 25,956/sqft. The sales collection for the quarter was at Rs 1.8bn during the quarter. Rental income improve by 9% QoQ basis with occupancy levels for the mall remain flat (QoQ) and Westin improved by 1100bps (YoY) (offers better comparison for seasonality).

Management Outlook: (a) The Supreme Court hearing for the MOEF clearance of Mulund project has been started, but again because of the diwali vacation it goes postponed. Management expects this to launch at the end of Q1FY14E (b) For the Worli project, company has already identified the hotel operator but the definitive agreement is yet to sign. Management is hopeful to announce the same in the current quarter. Out of the total 2.1mn project, 1.8mn is towards residential and 0.3mn towards hotel. Budgeted Cost for the residential is Rs 6000/sqft. c) All approvals in the Esquire project in place. Management stated that the work has already started expects to start the revenue recognition from Q4FY14 onwards.

Valuation: Although we remain positive for the sustainability of cash flows from the projects in the long-term, however from the near-term perspective, the delay in the execution of Esquire & Oasis remains a risk. We maintain Buy rating with revised PT of Rs 302 is based on FY15E NAV. However, ORL's valuations at a premium to the sector. In our view, the premium is here to sustain, given: (a) Visible and relatively short land bank, (2) No debt with strong net cash in the balance sheet, (c) better governance, and (d) proven execution. Risks to our estimates are delay in key projects - Esquire, Oasis and approval of Mulund Project (3 mn sq ft).

Source : Equity Bulls

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