Oberoi Realty - Land acquisition adds visibility... - ICICIdirect

Oberoi Realty (ORL) has announced it has emerged as highest bidder for 25 acres of Tata Steel's land parcel in Borivali for ~Rs. 1155 crore. While we are yet to get clarity about the saleable area, our initial working suggests this acquisition could provide ORL with sales potential of 3.1 million square feet (msf) without parking FSI (3.8 msf-with parking FSI) translating into positive NPV of Rs. 9/share (Rs. 15/share with parking FSI). We highlight that while this development would make it a net debt company vs. net cash currently though still very low vis-à-vis its peers, we think it would allays concerns over the long term visibility given the fact that ORL had a limited land bank.

Borivali land to provide sales visibility, going ahead

ORL has announced it has emerged the highest bidder for 25 acres of Tata Steel's land parcel in Borivali for ~Rs. 1155 crore. Furthermore, media reports indicate it would also be required to pay ~Rs. 150 crore to the collector as unearned income and obtain permission for a portion of land from the collector's office and an NoC from the labour authority. Our initial working suggests this acquisition could provide ORL with sales potential of 3.1 msf without parking FSI (3.8 msf - with parking FSI) translating into a positive NPV of Rs. 9/share (Rs. 15/share - with parking FSI). We also highlight that while this acquisition would lead to debt of ~Rs. 800-900 crore, this acquisition would allay investor's concern over the long term visibility given the fact that ORL had a limited land bank.

Worli, Mulund and Borivali to support volume growth...

In Q4FY14, the Supreme Court had given forest clearance for the Mulund property paving the way for the 3.2 msf Mulund project launch. This coupled with formal launch of the Worli project (1.8 msf) in FY15E and Borivali launch in Q4FY15/ Q1FY16 apart from its Goregaon project would ensure strong sales volume over the next few years.

Attractively valued at 1.4x FY15 P/V; maintain BUY...

ORL is our top pick in the sector given the quality of the land bank, strong balance sheet, management bandwidth to execute projects and anticipated pick-up in sales volume with new launches along with attractive valuation (1.4x FY15E P/BV and 0.7x of its NAV). We also highlight that current land acquisition would allay investor's concern over long term visibility on the sales front. We maintain our BUY rating with a target price of Rs. 285/share.

Source : Equity Bulls

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