orbit corporation report

8/7/2019 orbit corporation Report

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Bloomberg code ASSB

Financial Highlights (Rs mn)

BuyRs595

Orb i t Co rpo ra t i onIn A Different Orbit

Urmik Chhaya91-22-6639 9176

[email protected]

Nirav Parikh ,CFA91-22-6639 9147

[email protected]

Y/E March FY06 FY07 FY08E FY09E

Net Sales (Rs Mn) 7.2 1915.0 9002.0 14150.7

EBIDTA (Rs Mn) 35.9 740.0 4293.7 6931.8

EBIDTA (%) 38.6 47.7 49.0

Net Profit (Rs Mn) 1.1 572.2 2739.1 4395.8

EPS (Rs) (Fully Diluted) 0.1 21.1 60.4 96.9

EPS Growth (%) 41568.8 286.7 160.5

Investment Positives

Niche focus with huge market opportunity

Orbit Corporation Ltd (OCL) primarily focuses on

redevelopment of existing properties in the island city of

Mumbai (Mahim-Colaba). The redevelopment undertaken by

it primarily involves construction of new buildings, wherein a

set percentage of houses are given back to existing tenants

and the balance are for free sale. The re-developed property

is targeted towards high end customers.

Huge market opportunityCurrently, there are 19,642 buildings which are old and

dilapidated (50-200 years old) in Mumbai. Currently, the

market potential stands at 6,386 units which fall under

different categories/wards that are available for

redevelopment. (Refer Table 2)

Ability to monetize projectsThe ability to monetize projects is the key differentiator for a

real estate company, since the industry is highly capital

intensive. With the recent monetization of its Kalina project,

the company has once again displayed its ability to monetize

projects, early.

Concerns

Long gestation periodThe redevelopment projects normally have a longer gestation

period due to the nature of projects and the process involved.

Negotiations with tenants may take a longer time, thus

resulting in fluctuations in earnings

Valuations

At Rs594.9, Orbit Corporation trades at P/E of 9.9x and 6.1x on

FY08E and FY09E basis. Initiate coverage with a BUY and a

target price Rs775/share at which the stock will trade at 8x PER

on FY09E.

Reuters code ORCP.BO

Bloomberg code ORB IN

Shares o/s 36.27mn

Mkt Cap Rs22bn / US$0.5bn

52 week high/low Rs629/90

Avg daily trading volume 3.83mn shares

BSE Sensex 17777

Nifty 5209

Shareholding pattern (%)

Promoters 60.5

Flls 4.2

Banks/FIs/MFs 4.5

Public/Others 30.8

Performance (%) 1m 3m 12m MTD

Absolute 24.3 109.8 NA 14.6

Relative to Sensex 8.2 75.6 NA 11.4

Share Price Movement

0

100

200

300

400

500

600

700

Apr-07

May-07

Jun-07

Jul-07

Aug-07

Sep-07

(Rs)

Why we did this report

Niche player in real estate.

Is not a land bank story.

How are we different?

The company has been valued on a P/E basis ratherthan NAV due to its specific characteristics.

Key triggers

Larger number of projects getting bunched in FY08 &FY09. Financial Highlights


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Contents

Investment positives ....................................................... ............................................................... 3

Niche focus with huge market opportunity .............................................................. ....................... 3

Huge market opportunity ....................................................... ........................................................ 3Ability to execute and monetize projects (Kalina project)............................................................... 4

Ability to monetize projects ...................................................... ...................................................... 4

Market re-rating of the stock after the transaction.......................................................................... 5

Less vulnerable to interest rates cycle......................................... .................................................. 5

Concerns ................................................... ........................................................... ......................... 5

Long gestation period ......................................................... ........................................................... 5

Valuation methodology ........................................................ .......................................................... 6

Strategy and outlook.............................................................. ........................................................ 6

Annexure I ................................................. ........................................................ ............................ 7


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Orbit Corporation

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I nvestm ent pos i t i ves

NICHE FOCUS WITH HUGE MARKET OPPORTUNITY

Orbit Corporation Ltd (OCL) is primarily focused on redevelopment of existingproperties in the island city of Mumbai (Mahim-Colaba). The redevelopment

undertaken by it primarily involves construction of new buildings, wherein a set

percentage of houses are given back to existing tenants and the balance is for free

sale. The re-developed property is targeted towards high end customers.

HUGE MARKET OPPORTUNITY

The company primarily operates under three regulations of DCR (DevelopmentControl Regulations) namely regulations 33(6), 33(7) and 33 (10).

Table 1: DCR Regulations

Key Elements 33(6) 33(7) 33(10)

Features of SchemeExisting Built Up Area available fordevelopment irrespective of applicable FSIfor the plot size

Higher of 2.5 times of plot area available fordevelopment or 50% of the rehabilitationarea as incentive

Maximum of 2.5 times of Plot areaavailable for redevelopment or 3 timesPlot area incase of dense projects

Identification of Property Preferably in the CRZ zone All other parts of the Island City Slums situated over large areas

Ownership Strategy Direct Ownership Direct Ownership/Joint Development Development Agreement

Redevelopment Area/Tenement Existing Built Up AreaMinimum 225SFT upto a Maximum of750 sq.ft per tenement Only 225 SFT self contained Apts

Tenant Rehabilation Strategy Complete buyout of tenancy rights No buyout No buyout

80I (b) Tax Benefits Available Available AvailableDiscounted BMC DevelopmentCharges

Available Available Available

Relative Acquisition Cost High Low Low

Value Realization Very High High Low

Source: Company

Understanding 33 (7) This section is dynamic in terms of Floor Space Index FSI).Under this scheme, the area to be developed can be 2.5x the size of the plot or 50%

of rehabilitation as incentives. However, this option is dependent on the number oftenants. The numbers of tenants determine incentives for developers. (Refer Table

1).


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Alchemy

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Table 2: Section 33(7)

Case A

Tenants not selling out

Particulars Case I Case II

Area (Sq ft) (A) 10000 10000

FSI (B) 2.5 2.5

Tenants (C ) 100 20Min SFT/Tenant (D) 225 225

Area to be provided to existing tenant (C x D) 22500 4500

Area that can be developed (2.5 FSI) (A x B) 25000 25000

Incentive @ 2.5 times Plot 2500 20500

Incentive @ 50% of rehab area (SFT) 11250 2250

Effective FSI @ 2.5x plot (SFT) 2.50 2.50

Effective FSI @ 50% of rehab area 3.38 0.68

Case B

Tenants selling out

Particulars Case I Case II

Area (Sq ft) (A) 10000 10000

FSI (B) 2.5 2.5Tenants (C ) 100 20

(% of tenants selling out) (D) 40% 40%

Min SFT/Tenant (E) 225 225

Area available for tenants (E x C) 22500 4500

Area of tenants selling out (SFT) (C x D x E) 9000 1800

Area to be provided to existing tenant 13500 2700

Area that can be developed (2.5 FSI) (A x B) 25000 25000

Incentive @ 2.5 FSI 2500 20500

Incentive @ 50% of rehab area (SFT) 20250 4050

Incentive @ 50% of rehab area in Case A (SFT) 11250 2250

Source: Alchemy

Table 3: Market potential and addressable market

Ward Total Redeveloped Under Process Potential

Dilapidated Bldgs Under Construction NOC Obtained

A 936 9 5 8 914

D 2747 71 53 53 2570

F&G North 2056 212 93 93 1658

F&G South 1336 35 31 31 1239

Open Plots

Total 7075 327 182 185 6381

Source: Company

ABILITY TO EXECUTE AND MONETIZE PROJECTS (KALINA PROJECT)OCL, till date, has executed one project (Shivam Babulnath, South Mumbai) and has

16 more projects under execution. The project was completed in March 2005 and

average realization per unit was Rs17.4mn (Average size of unit 1860 sq.ft.) Two other

projects, namely Orbit WTC (Bandra Kurla Complex, Suburbs) and Orbit Plaza (BKC,

Suburbs) have already been pre-sold to the extent of 100% and 86.7%, respectively (For

further details, refer to project details -- Annexure I).

ABILITY TO MONETIZE PROJECTS

The ability to monetize projects is the key differentiator for a real estate company, since

the industry is highly capital intensive. Also, for a niche player like OCL, whose

segment area has high gestation period with gradual lock up of capital, monetizingcapital at the early stage of a project is highly beneficial.


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Orbit Corporation

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Kalina project (Orbit WTC)

OCL through its SPV Orbit Shelters Pvt Ltd, acquired a property located at Kalina,

Santacruz, Mumbai, from Ambuja Cements Ltd for Rs3.33bn. A bridge loan of Rs2bn

was raised for funding this acquisition. This property has been sold for Rs8.07bn and is

expected to be delivered in March 2009.With the property already pre-sold, the

company intends to pay off the debt raised. Thus, the company has already monetizedthe project.

Table 4: Kalina deal structure

Particulars (Rs mn)

Debt 2000

Equity 1500

Land Cost 3330

Stamp Duty 170

Development Cost 1500

TDR 250

Total Cost 5250

Sale Price 8070

Profit 2820

Source: Company

Market re -ra t ing o f the s tock a f te r the t ransac t ion

Chart 1: Re-rating after the Kalina deal

100

200

300

400

500

600

700

Apr-07

May-07

Jun-07

Jul-07

Aug-07

Sep-07

(Rs

)

Acquisition of

Kalina Property

Pre-selling of Kalina

Property to JSW group

Source: AlchemyLESS VULNERABLE TO INTEREST RATES CYCLEOCL primarily operates in a segment which is less vulnerable to the interest rate cycle.

This is due to the fact that both regulations under DCR i.e. 33(6) and 33(7) are primarily

meant for high end users. This is evident from average realizations for properties already

sold by OCL.

Concerns

LONG GESTATION PERIODThe redevelopment projects normally have a longer gestation period due to the nature of

projects and the process involved. Negotiations with tenants may take a longer time,

thus resulting in fluctuations in earnings.


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Valuat ion methodologyReal estate companies are primarily valued using present value approach where in free

cash flows are discounted using an appropriate discount rate. However, this approach

will not be appropriate for company like OCL.

The NAV approach is more appropriate for companies having large land banks and this

approach is expected to be utilized over a period of time. However, OCL, which

operates in a niche segment and relies on redevelopment valuations are highly project

sensitive. The price/earnings multiple would be appropriate for a company like OCL.

For continued momentum in earnings, the call would be on macro opportunity and

ability of the management to capitalize on it. In OCL, the macro opportunity is

significant and its management has certainly shown its ability to capitalize on it.

Valuat ionAt Rs594.9, Orbit Corporation trades at P/E of 9.9x and 6.1x based on FY08E and

FY09E. Initiate coverage with a BUY and target price Rs775/share at which the stock

will trade at 8x PER on FY09E.

Strat egy and out lookOCL will continue to focus on redevelopment of properties. The company expects 70%

of its projects to be of redevelopment and 30% through open plots. The company

intends to go for block development which will expedite the process of tenant

rehabilitation and enable the company to go in for larger projects. The company plans to

develop the concept of studio apartments, thus targeting working couples. Under the

concept of studio apartments (these will developed in areas which were previously

industrial area in South Mumbai primarily Lower Parel), all household services are

provided by developers to customers (since target customers are working couples).

Average size of these apartments will be 700-1,000 sq ft.


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PROJECTDETAILS

Expected

Completion

TotalAreaofConstruction

ProjectType

Location

Est

Saleble

Area

Est

Builtup

Area

Total

Est

Cost

(A+B)

Land

Acquisition

Cost

(A)

Construction

Cost

(B)

Est.Avg

Realisation/

sqft

Parking

Rates

(Per

Parking)

No

of

Parkings

Res/Commercial

Proje

cts

(sqft)

(sqft)

(Rsmn)

(Rsmn)

(Rsmn)

(Rs)

(Rs.)

OrbitA

rya

Napeansea

Road

December2008

65000

108500

1341.2

696.1

645.1

45000

1500000

120

Residential

OrbitH

eights

TardeoRoad

June2008

82500

190500

696.7

52.9

643.8

24000

900000

180

Residential

OrbitE

ternia

LowerParel

December2008

25000

84000

185.6

23.9

161.7

18000

800000

100

Residential

OrbitE

nclave

PrathnaSamaj

March2010

23000

67000

171.2

12

159.2

27000

700000

60

Residential

HafeezContractorHouse

LowerParel

December2009

226200

493111

1674.6

570

1104.6

45000

700000

150

Commercial

OrbitH

aven

Napeansea

Road

March2010

35000

71800

457.3

213.5

243.8

18000

1500000

72

Residential

OrbitG

rand

LowerParel

June2009

48000

137500

295.9

63.4

232.5

50000

700000

150

Residential

VillaO

rb

Napeansea

Road

March2008

52500

91300

1127.6

765

362.6

50000

1500000

72

Residential

OrbitA

mbrosia

AltamountRoad

December2009

34000

62800

516.6

270

246.6

40000

1500000

72

Residential

OrbitV

iew

WorliSeaFace

March2010

35000

63800

701.5

450

251.5

18000

1000000

72

Residential

OrbitP

laza

BandraKurla

Complex

December2007

75000

110000

419.5

170

249.5

22000

800000

100

Commercial

GokuldasDevjiWadi

Tardeo

September2009

14375

39575

111.8

50.3

61.5

20000

800000

20

Residential

JensenVeneers

NewBreach

CandyRd

March2010

10500

17500

96.2

36.8

59.4

18000

800000

20

Residential

IqbalM

anzil&DaruwalaChawl

LowerParel

December2009

25000

68400

254.5

75

179.5

20000

800000

60

Residential

Munku

ndMansion

Napeansea

Road

March2010

52500

81300

1140.0

900

240

50000

1500000

72

Residential

OrbitW

TC

BandraKurla

Complex

March2009

333000

493000

5250.0

3500

1750

25000

800000

400

Commercial

Source

:Company,Alchemy

Note:1)ParkingisnotpartofFSIcalculations


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Orbit Corporation

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Source: Company, Alchemy

ANN EXURE I

Cash Flow Rs.mn

(Rs Mn) FY06 FY07 FY08E FY09E

EBIT 36.1 749.6 4280.5 6898.6

Less : Tax 1.2 76.7 1386.1 2224.4

Net Operating Profitafter Tax

34.9 672.9 2894.5 4674.2

Change in WorkingCapital

-2078.2 -460.3 4551.6 2485.4

Add: Depreciation 1.8 8.2 30.9 51.0

Operating Cash Flow -2041.5 220.7 7477.0 7210.6

Capex -20.8 -29.3 -100.0 -100.0

Free Cash Flow-2062.3 191.4 7377.0 7110.6

Ratios

FY07 FY08E FY09E

Profitability

EBIDTA margin (%) 38.6 47.7 49.0

Net Margin (%) 29.9 30.4 31.1

ROE (%) 38.1 71.4 43.3

ROCE (%) 27.1 77.7 56.4

Leverage

Debt/Equity Ratio (x) 0.5 0.3 0.2

Valuation Ratios

PER (x) 8.7 5.4

EV/EBIDTA (x) 4.8 3.8

Per Share Data (Rs)

EPS 21.1 60.4 96.9

Income Statement Rs.mn(Rs mn) FY06 FY07 FY08E FY09E

Net Sales 7.2 1915.0 9002.0 14150.7

Operating Expenses -29.8 1170.6 4702.3 7212.9

EBIDTA 35.9 740.0 4293.7 6931.8EBIDTA (%) 38.6 47.7 49.0

Depreciation 1.8 8.2 30.9 51.0

EBIT 36.1 749.6 4280.5 6898.6

Interest 33.8 100.7 155.3 278.4

Profit Before Tax 2.3 648.9 4125.2 6620.2

Provision for Tax 1.2 76.7 1386.1 2224.4

Profit After Tax 1.1 572.2 2739.1 4395.8

Balance Sheet Rs.mnY/E March (Rs mn.) FY06 FY07 FY08E FY09E

Sources of Funds

Equity Share Capital 216.0 271.7 362.7 453.7

Reserves & Surplus 770.5 1760.6 5306.4 14180.8

Less: Misc Exp notwritten off

2.5 14.4 9.4 4.4

Shareholders Funds 983.9 2018.0 5659.8 14630.1

Application MoneyPending Allotment

23.0 1001.0

Minority Interest 0 1.5 1.5 1.5

Loan Funds 595.6 917.9 1417.9 2767.9

Secured Loans 439.7 763.1 1263.1 2613.1

Unsecured Loans 155.9 154.8 154.8 154.8

Total Capital Employed 1602.5 3938.4 7079.2 17399.6

Application of Funds

Fixed Assets 23.3 42.5 111.5 172.3

Gross Block 27.2 54.2 154.2 254.2

Less: Depreciation 4.0 11.8 42.8 81.9

Net Block 23.2 42.4 111.5 172.3

Capital WIP 0.1 0.1

Investments 0.6 0.6 0.6 0.6

Current Assets 2008.4 5680.4 13461.3 25743.8

Inventories 1205.4 1672.7 4076.3 6276.8

Sundry Debtors 55.1 1085.3 3000.7 4716.9

Cash & Bank Balances 154.7 1831.8 5119.47 13177.20

Loans and Advances 593.3 1090.5 1264.9 1572.8Current Liabilities 430.0 1785.0 6494.1 8517.1

Current Liabilities 424.7 1702.3 5095.33 6276.83

Provisions 5.3 82.7 1398.76 2240.27

Net Current Assets 1578.43 3895.3 6967.2 17226.7

Total Capital Employed 1602.5 3938.4 7079.2 17399.6


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Alchemy

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SalesArun Singh [email protected] 91-22-6639 9125

DealingChetan Chitroda [email protected] 91-22-6639 9134

Disclosure of interest statement

Analyst holding of the stock NO

Firm holding of the stock NO

Owners holding of the stock YES

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endorsements or offerings of any securities, options, stocks or other investment vehicles. The report is intended for general circulation and does not take into account the

specific investment objectives, financial situation or particular needs of any particular person. The securities discussed in this report may not be suitable for all investors.

The appropriateness of any particular investment or strategy whether opined on or referred to in this report or otherwise will depend on an investors circumstances and

objectives and should be independently evaluated and confirmed by such investor, and advice should be sought from a financial adviser concerning the suitability of the

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Investment ideas and/or corporations discussed in this website may have a high level of volatility. High volatility investments may experience sudden and large falls in

their value causing losses when the investment is realised. Those losses may equal the original investment. Some investments may not be readily realisable and it may be

difficult to sell or realise those investments. Similarly, it may prove difficult to obtain reliable information about the value and risks to which such an investment is

exposed. Neither us nor any of our affiliates shall assume any legal liability or responsibility for any incorrect, misleading or altered information contained in this report.

Past performance is not necessarily indicative of future results and there can be no assurance that any investment will achieve comparable results or its investment

objectives. Investors may not get back the full amount invested and the net asset value of the investment will fluctuate. Exchange rate fluctuations may affect the return to

investors.

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of securities of companies mentioned in this report, and may make investment decisions that are inconsistent with the views expressed in this report.

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(Tel): 91-22-6639 9100 (Fax): 91-22-2203 3575

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