Sunday, January 29, 2012

>OBEROI REALTY: An investment profile

 Revenue declined by 53%YoY to IN1.9b (v/s. est. of INR2.2b) due to lower than expected recognition.

 EBITDA down by 54%YoY to INR1.1b (est. of INR1.2b), while margin improves to 60.5% (v/s. 52% in 2QFY12) due to a) Price escalation across all ongoing projects and b) effect of one-time cost escalation adopted in 2QFY12 in Exquite and Grande on account of change in specification. Also with completion of the Splendor (the highest margin project), 100% revenue recognition from all incremental sales from this project has also boosted EBITDA margin in 3QFY12.

 PAT increased by 17%YoY to INR1b (v/s. est. of INR1.1b).

 QoQ sales volume declined sharply to 0.12msf: During 3QFY12 OBER witnessed sharp a decline in QoQ sales volume to ~0.12msf (INR1.8b) as against 0.19msf (INR2.2b) in 2QFY12 and ~0.15msf (INR3.2b) in 3QFY11. Esquire and Grande continue to remain key sales driver with 55% and 22% contribution respectively. While challenging macro remains the major attributable factor, the company has raised prices across all its ongoing projects by ~10%, which could be the other factor for sales decline. 9MFY12 residential sales stood at 0.52msf/INR6.5b (up from 0.4msf in 9MFY11) as against our est. of 0.7msf/INR10.6b in FY12E.

 Lower incremental sales continues in revenue contributing projects: During 3QFY12, OBER's revenue stood at INR1.9b, comprising a) INR575m of annuity income (v/s. INR510m in 2QFY12) and b) INR1.2b from (v/s. INR1.6b in 2QFY12) recognition of sales from residential projects. The key revenue contributing residential projects are:

1. Exquisite (INR0.3b v/s. INR0.6b in 2QFY12) - sales of 0.01msf (8units)
2. Splendor (INR0.5b v/s. INR0.7b in 2QFY12) - sales of 0.01msf (14 units)
3. Grande (INR0.3b v/s. INR0.3b in 2QFY12) - sales of 0.03msf (15 units)

 Contribution from Esquire to be delayed to FY13: OBER's FY12 sales have been largely driven by Esquire, which contributed for ~69%/64% of sales volume/value during 9MFY12. However, the project is unlikely to cross the recognition threshold of 20% in 4QFY12 and is expected to be delayed till 1QFY13. Esquire has achieved sales of ~INR7.5b till 3QFY12, which offers a strong revenue visibility in 1QFY13. Nonetheless, we are downgrading our FY12 revenue estimate by ~24%, due to shifting of revenue recognition of Esquire by a quarter.

 Annuity income improves QoQ: During 3QFY12, OBER's annuity income stood at INR555m v/s INR497m in 2QFY12 and INR518m in 3QFY11. While uptick in contribution is largely attributable to higher ARR (~14% up QoQ) and occupancy at Westin. However the occupancy of 64% is far below the management's expected steady state level of ~70% - which kept the EBITDA margin for Westin subdued at ~24%.

To read the full report: OBEROI REALTY