>ORBIT CORPORATION: New launches in Q2FY2013- Orbit Laburnum, Orbit Grandeur - Slum. Napean Sea road

Slow execution & poor pre sales mar revenues: Orbit Corporation’s consolidated revenues in Q3FY2012 came in at Rs71.5 crore, down 37% year on year (YoY) and 31% sequentially due to weak execution across projects and poor presales in M9FY2012 so far. Project wise, Orbit Haven (Napean Sea Road) contributed the highest during the quarter at Rs22.6 crore followed by Orbit Residency Park (Andheri-Saki Naka) at Rs20 crore and Villa Orbit Annex (Napean Sea Road) at Rs10.6 crore. Orbit Enclave (Prarthna Samaj) could not reach the threshold of 25% completion during the quarter. So no revenue was recognised from the project. However, with 19% completion status, it is expected to contribute from Q4FY2012.


Sharp rise in margins, but escalating interest cost dents PAT: The operating margin was up 125bps YoY to 54% mainly on account of higher revenue booking from the Napean Sea Road premium properties which garnered high margins. There is a huge sequential improvement of 20% in margins as Q2FY2012 was hit by an increase in the cost of projects and lower margins booked in its Ocean Paeque asset sale. However poor performance at the top line along with escalating interest burden, which grew 21% YoY, and a higher tax payout completely negated the strong margin expansion. As a result, the profit after tax (PAT) declined by 86% YoY and 20% on a sequential basis.


Presales improve sequentially but still a long way to go: Presales for the quarter stood at Rs71.1 crore (32,921 sq ft) which are better compared to Q2FY2012’s presales of a measly Rs2.41 crore (9,034 sq ft) but poor as against Rs133.5 crore (62,158 sq ft) of presales attained in Q3FY2011. The poor performance on the presales front is on account of absence of new launches during the quarter which are stuck up for clearances and approvals. The company resorted to some discount in Orbit Laburnum (Gamdevi, of ~2.5%) and Orbit Residency (Andheri-Saki Naka, ~14.5%) projects. On the contrary the Lower Parel and
Tardeo properties witnessed price appreciation in the range of 10-20%.


Downgrading estimates for FY2012 but retaining FY2013’s: We have kept our revenue booking estimates for FY2012 and FY2013 unchanged. However for FY2012 we are lowering our EBITDA by 3% on account of lower margins. Further with a rise in interest cost for the company and a dip in margins we are reducing our FY2012 earnings by 17%. But we keep our FY2013 estimates unchanged and expect the demand to revive towards the end of H1FY2013. The management intends to bring in a strategic partner in two to three of the company’s projects which will help it to keep a check on its debt and speed up execution.

Maintain Buy, price target revised to Rs70: Poor sales across projects due to regulatory uncertainties and absence of new launches due to pending approvals and clearances took a toll of the company and the overall industry. However there have been amendments in Development Control Rules (DCR) which now create a level playing field for developers and provide regulatory clarity. This will result in pending projects now getting approved. Further with the clear timeline set for sanctioning approvals, the process will speed up. Thus as and when the company manages to gain some traction on the new launches front and on the execution, the performance would eventually reflect on the stock. The next couple of quarters need to be keenly watched in terms of the cut in interest rate cycle and the progress on the approvals front for the company. We like Orbit Corporation given its presence in the key property market— Mumbai—where it caters to the luxury segment which is relatively stable in terms of pricing. Hence we maintain our Buy rating on the stock. We factor in strong execution and sales from H2F2013 onwards in our net asset value (NAV) and reduce our discount given to NAV to 50% which results in a revision of the target price upwards to Rs70 from Rs50 earlier. At the current market price, the stock trades at 7.2x its FY2013E earnings.


Sales improve sequentially but not up to the mark Presales for the quarter stood at Rs71.1 crore (32,921 sq ft) which are better than Q2FY2012’s presales of measly Rs2.41 crore (9,034 sq ft) but poor as against Rs133.5 crore (62,158 sq ft) of presales in Q3FY2011. The poor performance on the presales front is on account of absence of new launches during the quarter which are stuck up for clearances and approvals. The company resorted to some discount in Orbit Laburnum (Gamdevi, ~2.5%) and Orbit Residency (Andheri-Saki Naka, ~14.5%) projects. On the contrary the Lower Parel and Tardeo properties witnessed price appreciation in the range of 10-20%. In Q4FY2012, the presales will be largely driven by bulk sales in two of its properties viz Orbit Residency (Andheri) and Orbit Terraces (Lower Parel) which might happen at some discount to the prevailing prices. It had previously done this in its Laburnum project in Gamdevi.



The average price for the quarter stood at Rs21,597/sq ft vs Rs26,677/sq ft for Q2FY2012 and Rs12,485/sq ft in Q3FY2011. With the amended DCR now in place, the company expects the approval process to be streamlined quickly. As a result the company has planned to start
applying for fresh project approvals since March and expects the fresh launches to start from the end of Q1FY2013.



New launches to kick in from Q2FY2013; strategic partners to be roped in The company is hopeful of launching the SRA project in Santa Cruz (one phase), Orbit Laburnum (balance), and a new project in Napean Sea Road by Q2FY2013 for which approvals are in process at various stages. The company is looking at roping in a strategic partner in its Santa Cruz project which will help in execution without raising further debt. The company may also look at partial exit in this project.



Further the pending approvals for Mandwa will take approximately six months for clearance, post which the company will launch the project completely. Further for the Kilachand property the company plans to rope in a strategic investor and is lined up for a launch in the next two to three quarters. Also the Orbit Terrace clearances have come in December and construction work has gained momentum. All the other under-construction projects are well on track and are on schedule for completion. Further the company is exploring a new property at Kemps Corner
which would come into the books of the company in Q1 – Q2FY2013. The said project is likely to be launched by Diwali.


Valuation and view
Poor sales across projects due to regulatory uncertainties and absence of new launches due to pending approvals and clearances took a toll of the company and the overall industry. However there have been amendments in DCR which now create a level playing field for developers and
provide regulatory clarity. This will result in pending projects now getting approved. Further with the clear timeline set for sanctioning approvals, the process will speed up. Thus as and when the company manages to gain some traction on the new launches front and on execution, the performance would eventually reflect on the stock. The next couple of quarters need to be keenly watched in terms of the cut in interest rate cycle and the progress on the approvals front for the company. We like Orbit Corporation given its presence in the key property market— Mumbai—where it caters to the luxury segment which is relatively stable in terms of pricing. Hence we maintain our Buy rating on the stock. We factor in strong execution and sales from H2F2013 onwards in our NAV and reduce our discount given to NAV to 50% which results
in a revision of the target price upwards to Rs70 from Rs50 earlier. At the current market price, the stock trades at 7.2x its FY2013E earnings.

RISH TRADER