>Orbit Corporation Ltd (SBIcap Securities)

Orbit Corporation Ltd (OCL’s) result was disappointing, on the back of the deterioration in the macroeconomic environment, which has affected the whole real estate sector. OCL sales registered a decline of 60% in FY09 at Rs 2835 mn when compared to Rs 7055 mn in FY08. On QoQ basis the company showed a growth of 65% from Rs 483 mn in 3QFY09 to Rs 796 mn in 4QFY09. OCL was able to log some incremental sales in 4QFY09 which it was not able to do in 3QFY09. Sales transactions in 4QFY09 indicate stabilization of the real estate market. We believe that transactions will be slow in the high & premium segment where OCL primarily operates. We maintain our rating of market performer for the stock.

Incremental Sales gives evidence of revival:
The Company booked sales of around 16,521sq ft in 4QFY09 as compared to 3QFY09, where the company was not able to log any incremental sales. The value of the incremental sales for the 4QFY09 was Rs 360 mn. All of the sales were booked in the residential segment with no commercial transaction taking place is this quarter.

Incremental sales on with a huge discount:
The sales booked by the company in 4QFY09 were at a discount of ~30% - 35% from the rates quoted in 2 quarter of the fiscal year. The sales were mainly in the region of Lower Parel where rates have come down from Rs 23000-25000 quoted in Q2 FY09 to Rs 15000-16000 per sq ft in Q4FY09. Sales at Nepensea road have been at the rate of Rs. 35,500 per sq ft in Q4FY09.

Sales Backlog providing some buffer:
Net Sales registered a declined of 60% in FY09 at Rs 2835 mn from Rs 7055 mn in FY08. OCL which was not able to log any incremental sales in 3QFY09 saw some transaction happening in 4QFY09. This gives the signal that the real estate market is stabilizing. Moreover sales backlog of Rs 3994 mn in 4QFY09 provide some visibility in terms of future earnings.

Decrease in EBITDA and PAT margins:
OCL registered a 4% decrease in EBITDA margin from 49% in FY08 to 47% in FY09. 0n QoQ basis registered a decrease of 60% from 72% in 3QFY09 to 28% in 4QFY09. The PAT margins registered a decline of 69% on QoQ basis and decline of 62% from 33% in FY08 to 13% in FY09.

Increase in Debt a concern:
The debt has increased by Rs 216.14 mn, taking the total debt (including CCD’s) to Rs 6773.03 mn in 4QFY09. This has led the increase in DE ratio 1.2x TO 1.24x from Q3 FY09 to Q4FY09. OCL has already restructured debt of Rs 2 bn (NCD’s) for a period of 3 years. The company has to repay term loan of Rs 640 mn till Oct – March 2010.

Increase in interest cost and Sales Impairment effect:
OCL’s interest cost has increased by 15% on YoY basis to Rs 235.1 mn from Rs 205.2 mn, because of increase in loan; On QoQ basis the company registered a decline of 9%. The tax provision made in earlier quarters was in excess of the actual tax liability for the entire financial year due to impairment effect which was due to reduction in sales area of Orbit WTC from 333000 sq ft to 316000 sq ft. Hence, for Q4-FY09 no further tax was provided and excess tax
provision was written back.

Valuations
At the current price of Rs 71.9, the stock is trading at PE multiple of 7x and 5.9x for FY09 and FY10E earning respectively. Poor macroeconomic conditions have not only hampered corporate expansion plans but have also weaken the residential market due to uncertain job environment. However sales backlog of Rs 3994.5 mn in 4Q FY09 gives some visibility in terms of earnings in FY10 but we believe high end residential market will take more time to recover when compared to mid or affordable housing. We also believe that OCL’s inability to sell Hafeez Contractor House due to the weak real estate market can impact the revenue for next 1-2 quarters. We maintain our rating of Market performer for the stock.

To see full report: Orbit Corporation Ltd