>ORBIT CORPORATION: Q4FY2012 revenue boosted by sale proceeds from Ocean Parque

Regulatory environment easing, execution holds the key



■  Q4FY2012 revenue boosted by sale proceeds from Ocean Parque: Orbit Corporation (Orbit)’s consolidated revenues in Q4FY2012 came in at Rs123 crore, up 80% year on year (YoY) and 71% quarter on quarter (QoQ) mainly due to booking of Rs65 crore from the Ocean Parque (Napean Sea Road, Mumbai) deal which took place earlier this fiscal. However, there was an impairment of Rs13 crore in the sales value of the World Trade Centre (WTC) project in Bandra Kurla Complex (BKC), Mumbai which impacted the company’s revenue during the quarter. Thus if we adjust these two items, the revenue for the quarter grew by 3.5% YoY and was down 1.5% QoQ. The same was due to poor execution across projects with construction activity having slowed down for want of clearances and approvals.


■ Q4FY2012 PAT below expectation; OPM takes a hit: The adjusted net profit fell by 75% YoY to Rs4.8 crore on the back of a sharp contraction in the operating profit margin (OPM) and higher interest cost. The OPM contracted from 77.9% in Q4FY2011 and 54.1% in Q3FY2012 to 35.7% for the quarter under review. The contraction is on account of impairment booked in case of WTC, adjusting for which, the margins would have stood at 51.5%. Further the budgeted cost has been increased during the quarter for three projects under development. During the quarter the company paid further tax of Rs9.7 crore pertaining to the previous
years, which resulted in a net loss of Rs4 crore at the reporting level. Additionally the auditors have qualified the report that Orbit has not provided for income tax demand including interest amounting to Rs157 crore for previous assessment years. However, the management is contesting the same and is confident of much lower tax liability.


■ Presales marginally lower sequentially but expect a rebound in H2FY2013 as approvals gain pace: Presales for the quarter stood at 29,654 sq ft (Rs44.4 crore in value terms), ie slightly lower than Q3FY2012 volume of 32,921 sq ft (Rs71.1 crore in value terms) but much better than Q4FY2011 volume of 11,249 sq ft (Rs50 crore in value terms). The fire sale at Orbit Residency (Andheri) and Orbit Terraces (Lower Parel) supported the volume. However in value terms they are much lower since no sales booking took place in any of the Napean Sea Road projects which command high premium. Going ahead, the management is looking at launching a couple of projects in Napean Sea Road and the first phase of Mandwa by Dussera-Diwali time as approvals and clearances have started kicking in for the stalled projects.


■ Execution set to improve; though downgrading FY2013 and FY2014 estimates: The regulatory environment has started improving where clearances and approvals have started coming in. Orbit has already received clearances for Orbit Terraces, Orbit Enclave and Orbit Haven where the execution can now resume on full swing. It is expecting more clearances which will help it launch more projects in H2FY2013. However, we are reducing our earnings estimate for FY2013 and FY2014 by 27% and 21% respectively on the back of lower revenue recognition. The execution will pick up post monsoon only, which will result in lower revenue recognition. A stake sale in a few projects and improvement in cash collection hold the key for smooth execution going ahead. Debtors collection has been very poor in FY2012 which has
impacted the working capital.


■  Maintain Buy, outlook improves: Poor sales across projects due to regulatory uncertainty and absence of new launches due to pending approvals and clearances had taken a toll on the company and the overall industry. However the regulatory environment has started improving and the clearances have started coming in for the stalled projects. This will result in a pick up in execution and launch of new projects. A stake sale in few projects along with improved cash
collection hold the key. Thus with improved outlook, we maintain our Buy rating on the stock with price target of Rs70. We have rolled forward our net asset value (NAV) to FY2013 and lowered the discount to NAV from 50% to 40%. At the current market price, the stock trades at 7.3x and 4.4x its FY2013E and FY2014 Eearnings respectively.


■ FY2012 net profit down 73% YoY
The net profit for the full year is down 73% YoY on the back of flat revenue, sharp dip in OPM and higher interest outgo. The revenue has been supported by Rs115 crore of sale proceeds from the Ocean Parque deal. The OPM contracted from 52.5% in FY2011 to 39.2%, impacted by impairment of Rs20 crore on account of the WTC project. If we adjust for the same the margin would stand at 47.2%. Looking at partial exit or strategic partner in few projects


■ Orbit is looking to partially exit two of its projects viz Orbit Grandeur, Santacruz (SRA project) and the Kilachand project at Napean Sea Road in this fiscal itself. If it manages to successfully close the deal, this will help the company in execution of the projects without raising further debt on the books.


■ Presales marginally lower sequentially but expect a rebound in H2FY2013 as approvals gain pace Presales for the quarter stood at 29,654 sq ft (Rs44.4 crore in value terms), ie slightly lower than Q3FY2012 volume of 32,921 sq ft (Rs71.1 crore in value terms) but much better than Q4FY2011 volume of 11,249 sq ft (Rs50 crore in value terms). The fire sale at Orbit Residency (Andheri) and Orbit Terraces (Lower Parel) supported the volume.
However in value terms they are much lower since no sales booking took place in any of the Napean Sea Road projects which command high premium.



Going ahead, the management is looking at launching a couple of projects in Napean Sea Road and the first phase of Mandwa by Dussera-Diwali time as approvals and clearances have started kicking in for the stalled projects.

Valuation and view
Poor sales across projects due to regulatory uncertainty and absence of new launches due to pending approvals and clearances had taken a toll of the company and the overall industry. However the regulatory environment has started improving and the clearances have started coming in for the stalled projects. This will result in a pick up in execution and launch of new projects. A stake sale in a few projects along with improved cash collection hold the key going forward. Thus with an improved outlook, we maintain our Buy rating on the stock with a price target of Rs70. We have rolled forward our NAV to FY2013 and lowered the discount to NAV from 50% to 40%. At the current market price, the stock trades at 7.3x and 4.4x its FY2013E and FY2014E earnings respectively.

RISH TRADER