>OBEROI REALTY

■ High visibility, low-cost land bank: With 82% of its gross NAV emanating from premium land parcels of Goregaon and Worli in Mumbai, Oberoi Realty is set apart, firstly, on account of high visibility of its land bank and secondly on account of its low cost, with a large majority of acquisitions having taken place pre-2005. Nearly 50% of the company’s ~20 msf land bank is currently in the execution stage. For majority of the remaining land bank too, development visibility is fairly high on account of strong project locations.


■ Picture-perfect balance sheet, strong cash generation: Generating positive cash flows consistently since FY08, coupled with a prudent land acquisition strategy, has resulted in a picture-perfect, zero-debt balance sheet with a cash balance of ~Rs14.4bn (PLe) as on March 2012. Further, we expect strong cash flow generation for Oberoi in the next few years, given the company’s lucrative residential land bank, large part of which is expected to be monetized in the next five years.


■ Project acquisitions & new launches – A trigger: On account of the company’s strong cash position, coupled with a limited development pipeline of 5-6 years, project acquisitions at attractive valuations will be an important trigger for the stock. Besides, the awaited launches of Oberoi’s Worli & Mulund project will also prove to be positive on sentiments.


■ Valuations: Two premium locations i.e. Goregaon and Worli, account for ~82% of the company’s NAV. High visiblity at both these locations, coupled with a strong balance sheet, gives us greater confidence in our NAV estimates. While Residential contributes ~44% of the gross NAV, the annuity portfolio (albeit small currently), is expected to scale up significantly in the next few years and contribute to the rest of ~54% of our Gross NAV estimates. We recommend ‘Accumulate’, with a target price of Rs309, at no dicsount to our NAV of Rs309.


RISH TRADER