26 March 2014
Update | Sector: Real Estate
Oberoi Realty
BSE Sensex
22,095
S&P CNX
6,601
CMP: INR218
TP: INR265
Buy
Long wait ends with big ticket acquisition
Borivali land could aid ~INR7b (~INR20/share) NAV accretion
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
OBER IN
328.2
283/154
7/14/-31
71.5
1.2
Financial Snapshot (INR Billion)
Y/E March
2014E 2015E 2016E
7.6 15.0 17.6
Net Sales
EBITDA
Adj PAT
EPS (INR)
Growth (%)
BV/Share
( )
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
4.1
3.1
9.5
9.1
6.4
19.6
10.8
7.7
23.5
20.2
14.5
19.6
9.3
1.3
Oberoi Realty’s (OBER) much-awaited big acquisition was concluded with the 25-
acre land purchase from Tata Steel at Borivali (Mumbai) at INR11.55b (base case
saleable area of ~3.3msf, with further potential from parking scheme).
Land parcel location attractive enough to aid 10-15% pricing premium. Base case
assumptions indicate 7.5% value accretion (NAV contribution of ~INR7b or
INR20/share @ discount rate of 14%).
OBER to turn net debt in FY15, with peak funding gap of INR10-12b. Arrival of
interest component in P&L to make earnings dilutive in FY15-16. We expect the
same to accelerate monetization efforts.
The project offers new cash flow stream, attractive replication of existing
business model, albeit with little dilution of balance sheet strength. Upgrade NAV
by 7.5%, maintain Buy with a target price of INR265.
Much-awaited big acquisition
Company concluded its first major big acquisition after almost 3.5 years of wait,
with the purchase of 25-acre land parcel from Tata Steel at Borivali (Mumbai) at
a bidding price of INR11.55b (v/s reserve price of INR7.5b and second bid of
INR11.50b from Lodha). OBER has to pay ~INR1.5b to the Collector and labor
authority to get NOC within three months, which makes a total acquisition cost
of INR13b (INR520m/acre and ~INR4,000/sf of estimated saleable area of
~3.3msf).
-38.3 106.2
7.3
9.0
23.0
1.6
13.7
18.5
11.1
1.4
134.0 151.2 172.4
Shareholding pattern (%)
As on
Dec-13 Sep-13 Dec-12
Promoter
Domestic Inst
Foreign
Others
75.0
0.5
23.1
1.4
75.0
0.8
21.9
2.3
78.5
0.8
19.6
1.1
Location attractive to justify moderate acquisition premium
The land parcel is situated in a very attractive corner plot, with the frontage
touching Western Express Highway and having excellent green view of the
Sanjay Gandhi National Park. We believe in the absence of major large parcel
development in the neighborhood, the project’s proposition should command a
strong marketability, with quality brand attached to it.
Deal to drive ~7.5% NAV accretion
Stock Performance (1-year)
Oberoi Realty
Sensex - Rebased
330
280
230
180
130
We expect OBER to command 10-15% pricing premium due to attractive
location and brand, albeit the launch price could be at par with market (we
assume ~INR12,000/sf in FY16E), with the company possibly willing to
accelerate early pre-sales for better cash flow management. Overall, our
proforma analysis suggests for ~7.5% value accretion (NAV of ~INR7b, or
INR20/share at a discount rate of 14%, refer exhibit 1 & 2). Here, we assume
average realization of INR17,000/sf over eight years of estimated project life
cycle (FY16-23), on base case area assumption of 3.3msf of saleable area (TDR,
and fungible FSI, RG deduction included). Accretion could be even higher if it
manages to achieve higher FSI through public parking scheme, which is also on
management’s scheme of things in the future.
Sandipan Pal
(Sandipan.Pal@MotilalOswal.com); +91 22 3982 5436
Investors are advised to refer through disclosures made at the end of the Research Report.

Oberoi Realty
Deal economics and conditions
Of the total 25 acre land, ~30% is “Sanad” land, acquired under the
provisions of the Land Acquisition Act, 1894. OBER needs to obtain
permission for sale of this portion from the Collector’s office and an NOC
from the Labour Authority within three months.
If the highest bidder is unable to obtain approvals, the MoU shall
automatically stand cancelled and initial ~10% payment will be forfeited.
However, based on our interactions with various stakeholders, we do not
expect the condition to be a big challenge to create an uncertainty.
OBER to turn net debt, earnings dilution in FY15-16 on interest outgo
Post a steady slowdown in pre-sales, lack of launches and continuous
construction spending in Worli project, OBER’s net cash surplus has declined
sharply to INR4.5b as in December 2013 (v/s ~INR12b in IPO). Thus, with initial
land payment of INR13b (assume TDR and fungible FSI payment would be
deferred to the mid of project life cycle), company is clearly going into a net
debt position. We expect it to raise INR10-12b of debt in FY15 (peak funding
gap to pay land cost). While it relatively dilutes the unique net cash balance
sheet comfort the company used to enjoy, it would be a concern as well with
~INR1.3b of annuity support (the mentioned quantum would take the peak
net DER of FY15 to 0.2-0.25x in FY15). We expect FY15-16 EPS to see 10-15%
downgrade due to arrival of interest expense. However we are yet to factor in
for the same due to lack of clarity on mode of funding.
Could it accelerate monetization effort?
OBER has guided for ~9 months of approval time for this project, with likely
launch in 4QFY15/1QFY16. Additionally, with debt coming on the balance
sheet, we anticipate an enhanced effort to monetize even other projects at a
faster pace to improve cash flow.
Maintain Buy with revised target price of INR265
Acquisition offers a new avenue of growth and source of cash flow over
medium term and would replicate its business model of large format
development. While several projects in the form of Mulund, JVLR, Worli are in
1HFY15 launch pipeline (albeit time line has been elusive thus far), newly-
acquired land offers some cushion in case of further slippages in any of the
existing plan. We maintain our positive view on the company as it continues to
remain a strong bet on Mumbai market’s recovery. Consistent spending in
constructions over last two years could meaningfully benefit its cash flow
when demand dynamics turn favorable. The stock trades at 1.3x FY16E BV, 10x
FY16E EPS. We upgrade our NAV by 7.5% to INR293 and target price to
INR265.
26 March 2014
2

Oberoi Realty
Exhibit 1: Area Calculation, assumptions and Proforma Project P&L
We assume the project
have saleable area of
3.3msf based on TDR,
fungible FSI etc. Public
Parking scheme could
increase the same ~4.5msf
Proforma area Statement
Land Area (acre)
Land Area (msf)
SANAD Land (msf)
Base FSI after RG deduction (msf)
TDR @ 1x land area (msf)
Total FSI (msf)
Fungible FSI (35%)
Saleable area assuming loading of 50% (msf)
Assumptions
Avg Realization (INR/sf)*
Avg Cost (INR/sf)*
Project Life cycle
Land cost (INR b)
Payment to Labour Authority (INR b)
Land Ready reckoner rate (INR/sf)
Fungible FSI cost (INR b)
TDR cost @ INR2.8K/sf (INR b)
Project P&L
Revenue (INR b)
Per sq ft
Construction cost (INR b)
Per sq ft
Land cost (INR b)
Per sq ft
Approval cost (INR b) TDR, Fungible FSI etc
Per sq ft
EBIT (INR b)
Per sq ft
Margin (%)
25
1.09
0.3
0.7
1.0
1.7
0.6
3.3
16,824
4,047
8 Years
11.55
1.5
3224
1.1
2.8
56.2
16,824
13.5
4,047
13.1
3,906
3.9
1,172
25.7
7,699
46
Source: Company, MOSL
Land cost of INR4,000/sf is
at slight premium to
prevailing rates, but
location is strong enough to
justify the same
We expect overall revenue
and profit of INR55b+ and
INR25b+ respectively over
assumed project life cycle
of 8 years
Estimate NAV accretion of
INR6.8b (INR20/share), Post
tax IRR of 19%, and NAV
accretion of ~7.5%
Exhibit 2: NAV Calculation: ~7.5% NAV accretion
FY15
Absorption (%)
Absorption (msf)
Assumed no of units/month
Realization (INR/sf)
Presales value (INR b)
Collections (INR b)
Cost schedule (%)
Cost (INR/sf)
Cost (INR b)
Approval cost
Land + SANAD cost
Gross Cash flow (INR b)
NPV @ 14% WACC (INR b)
NAV (INR b)
NAV/share (INR)
IRR (Post tax)
NAV Accretion (%)
FY16 FY17
20
15
0.7
0.5
46
35
12,300 12,915
8.2
6.5
3.3
6.3
10
3,350
1.1
10
3,518
1.2
0.0
13.1
-13.1
10.5
6.8
20.7
19%
7.6
Source: Company, MOSL
2.2
5.1
FY18 FY19 FY20 FY21 FY22 FY23
8
15
8
8
8
18
0.3
0.5
0.3
0.3
0.3
0.6
19
35
19
19
19
42
14,207 16,337 17,154 18,870 20,757 23,870
3.8
8.2
4.6
5.0
5.5
14.4
6.2
9.0
6.3
6.8
4.0
14.4
10
3,693
1.2
1.0
4.0
20
3,878
2.6
1.0
5.4
10
4,072
1.4
2.0
3.0
5.4
1.7
12.0
10
4,276
1.4
15
4,489
2.2
15
4,714
2.4
26 March 2014
3

Oberoi Realty
Location of Borivali land
The project location offers a
strong advantage and
pricing premium with
(1) highway frontage,
(2) excellent green view,
(3) large format
development scope and
(4) strong brand attached
Source: MOSL
26 March 2014
4

Oberoi Realty
Financials and valuation
Income statement
Borivali project is
likely to contribute to
revenue post FY16
Y/E March
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Reported PAT
Adjusted PAT
Change (%)
Min. Int. & Assoc. Share
Adj Cons PAT
2011
9,960
27.1
5,770
57.9
237
5,534
2
627
0
6,159
983
16.0
5,176
5,176
13.2
0
5,176
2012
8,247
-17.2
4,835
58.6
269
4,565
3
1,501
0
6,063
1,430
23.6
4,633
4,633
-10.5
0
4,633
2013
10,476
27.0
6,121
58.4
285
5,836
4
999
0
6,831
1,783
26.1
5,049
5,049
9.0
0
5,049
2014E
7,649
-27.0
4,147
54.2
281
3,865
0
650
0
4,515
1,400
31.0
3,116
3,116
-38.3
0
3,116
(INR Million)
2015E
15,008
96.2
9,065
60.4
392
8,673
0
638
0
9,311
2,886
31.0
6,424
6,424
106.2
0
6,424
2016E
17,636
17.5
10,830
61.4
392
10,438
0
756
0
11,194
3,470
31.0
7,724
7,724
20.2
0
7,724
FY15/16 Net profit could
see 10-15% downgrade
with interest component
arriving in P&L, we are yet
to factor in for the same
due to lack of clarity on
mode of funding
Balance sheet
Y/E March
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets
2011
3,282
29,834
33,117
0
0
33,476
7,996
415
7,581
1,728
650
29,955
7,747
468
13,990
7,751
6,438
6,029
410
23,517
33,476
2012
3,282
34,059
37,342
0
78
37,420
7,687
678
7,009
2,841
0
35,342
10,196
679
12,934
11,532
10,426
9,642
783
24,916
37,420
2013
3,282
38,339
41,621
0
147
41,769
7,796
929
6,867
3,848
0
39,522
12,448
522
10,725
15,827
11,121
10,331
790
28,400
41,769
2014E
3,282
40,686
43,969
0
147
44,116
9,796
1,211
8,585
3,904
0
40,471
16,064
548
4,577
19,282
11,499
10,709
790
28,972
44,116
(INR Million)
2015E
2016E
3,282
3,282
46,343
53,299
49,625
56,581
0
0
147
147
49,772
56,728
9,796
9,796
1,603
1,994
8,193
7,801
3,962
4,568
0
0
46,257
53,957
16,509
17,636
576
605
7,972
10,798
21,201
24,919
11,296
12,254
10,506
11,464
790
790
34,962
41,704
49,772
56,728
E: MOSL Estimates
Expect INR10-12b of peak
gross debt in FY15, with
likelihood of gradual decline
as project launch takes off
26 March 2014
5

Oberoi Realty
Financials and valuation
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Cash P/E
EV/EBITDA
EV/Sales
Price/Book Value
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios (%)
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Leverage Ratios (%)
Net Debt/Equity (x)
2011
15.8
16.5
100.9
0.0
7.3
2012
14.1
14.9
113.8
0.0
16.6
15.5
14.6
12.1
7.1
1.9
0.9
20.1
21.2
0.4
17.1
283.9
525.2
0.0
13.2
12.9
0.2
30.1
451.3
1031.5
0.0
2013
15.4
16.2
126.8
0.0
15.2
14.2
13.4
9.9
5.8
1.7
0.9
12.8
14.7
0.3
18.2
433.7
865.9
0.0
2014E
9.5
10.3
134.0
0.0
24.7
23.0
21.1
16.2
8.8
1.6
0.9
7.3
9.0
0.2
26.2
766.5
1115.9
0.0
2015E
19.6
20.8
151.2
0.0
12.0
11.1
10.5
7.0
4.2
1.4
0.9
13.7
18.5
0.3
14.0
401.5
645.2
0.0
2016E
23.5
24.7
172.4
0.0
9.9
9.3
8.8
5.6
3.4
1.3
0.9
14.5
19.6
0.3
12.5
365.0
614.8
0.0
Expect peak net debt at
0.20x-0.25x in FY15 to
bridge funding gap
Cash flow statement
Y/E March
OP/(Loss) before Tax
Depreciation
Others
Interest
Direct Taxes Paid
(Inc)/Dec in Wkg Cap
CF from Op. Activity
(Inc)/Dec in FA & CWIP
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax)
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
2011
6,159
237
0
2
983
3,474
1,947
-1,364
140
0
-1,224
10,044
0
2
377
9,672
10,395
3,631
14,025
2012
6,059
269
0
3
1,430
2,464
2,445
-3,458
650
0
-2,808
5
0
3
768
-853
-1,216
13,990
12,774
2013
6,831
285
0
4
1,783
5,694
-323
-1,116
0
0
-1,116
0
0
4
768
-841
-2,280
12,934
10,654
2014E
4,515
281
0
0
1,400
6,719
-3,322
-2,057
0
0
-2,057
0
0
0
768
-768
-6,147
10,725
4,577
(INR Million)
2015E
2016E
9,311
11,194
392
392
0
0
0
0
2,886
3,470
2,595
3,916
4,221
4,200
-58
-606
0
0
0
0
-58
-606
0
0
0
0
0
0
768
768
-768
-768
3,395
2,826
4,577
7,972
7,972
10,798
E: MOSL Estimates
26 March 2014
6

Oberoi Realty
NOTES
26 March 2014
7

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Oberoi Realty
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Disclosure of Interest Statement
1. Analyst ownership of the stock
2. Group/Directors ownership of the stock
3. Broking relationship with company covered
4. Investment Banking relationship with company covered
OBEROI REALTY LTD
No
No
No
No
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26 March 2014
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8