>OMAXE (PRABHUDAS LILLADHER)

■ Top-line as per expectation, margins disappoint: Omaxe’s revenues witnessed a sequential increase of 35%, largely led by strong sales booking as well as execution. However, margins were a great disappointment at 7% as against 24% in Q3FY10. One of the main reasons for the drop in the EBITDA margins is project delays at the company’s Grandwoods project in Faridabad and Omaxe Connaught Place in Greater Noida. This has led to an increase in the costs which the company has captured in the current quarters results. Certain provisioning as well as lower margins on construction revenues of Rs550m were other contributors to the fall in margins. The company’s PAT grew by 59% sequentially on account of lower interest cost (larger proportion was capitalized) as well as a tax writeback during the quarter.

■ Execution on track: We note that gross collections for Q4 have been Rs2.92bn as against Rs2.5bn in Q3, indicating traction in execution. As a significant area is in the last stage of construction, large quantum of deliveries is expected in the next two years. The entire 39.4m sq.ft sold by the company up to FY09 is likely to be delivered by March 2012.

■ Strong pipeline of launches: Omaxe posted sales volumes of 3.01m sq.ft in Q4 vis-a-vis 3.66m sq.ft in Q3. This translates into sales value of Rs5.14bn (Rs5.84bn in Q3). In Q4FY10, the company launched projects aggregating 2.65m sq.ft. With a healthy pipeline of launches in the current year, the first two months of FY11 have witnessed a number of launches in locations like Patiala, Mullanpur, Lucknow and Allahabad. On account of a large number of planned “Phase 2” launches in the existing projects over the next few months, we expect sales momentum to continue. We are estimating sales of 9.86m sq.ft in FY11 and 13.72m sq.ft in FY12.

■ Debt: Omaxe’s debt stands at Rs18.1bn which translates to a DER of 1.15. Its mandatory debt repayment obligation for FY11 and FY12 stands at Rs5bn each, while the interest cost stands at 14%.

■ Valuation: Our estimate of the company’s NAV stands at Rs209, which takes into account explicit cash flows of its on-going projects, discounted by a WACC of 18% and future projects at 1.5x the land cost. Omaxe’s construction business has been valued at 6xFY12E, translating to Rs6.2/share. We are assigning a discount of 35% to the NAV to arrive at our target price of Rs142. We maintain ‘BUY’ on the stock.

To read the full report: OMAXE