sector: real estate oberoi realty - business...

Oberoi Realty

Premium play

Robust loangrowth

Higherproductivity

Lower creditcost

33% EPSCAGR

ImprovedRoA, RoE

Initiating Coverage | SECTOR: REAL ESTATE

Siddharth Bothra ([email protected]); Tel: +91 22 3982 5407

Sandipan Pal (Sandipan.Pal @MotilalOswal.com); Tel: +91 22 3982 5436

Strongmonetization

visibility

Strongmonetization

visibility

Multiplerevenuestreams

MultiplerevenuestreamsHigh quality

land bankHigh qualityland bank Integrated

developmentIntegrated

development

Premiumbrand

Premiumbrand

Oberoi Realty

211 February 2011

Oberoi Realty: Premium play

Page No.

Distinguished Mumbai-focused play ................................................................4-11

Strong monetization visibility .......................................................................... 12-15

ORL to post revenue CAGR of 46% over FY10-13 .................................... 16-17

Prudent utilization of surplus cash could be a key trigger for the stock ...........18

Key headwinds ................................................................................................ 19-21

Valuation and view .......................................................................................... 22-26

Background ............................................................................................................27

Annexure-I: Project location .......................................................................... 28-31

Financials and valuation ................................................................................. 32-33

Oberoi Realty

STOCK DATA

16-W High/Low Range (Rs) 307/220

Major Shareholders (as of December 2010) (%)

Promoters 78.5

Foreign 9.4

Institutions 1.0

Others 11.1

Average Daily Turnover

Volume ('000 shares) 1,397.3

Value (Rs million) 400.4

1/6/12 Month Rel. Performance (%) 0/-/-

1/6/12 Month Abs. Performance (%) -8/-/-

KEY FINANCIALS

Shares Outstanding (m) 328.2

Market Cap (Rs b) 73.9

Market Cap (US$ b) 1.6

Past 3 yrs. Sales Growth (%) 34.5

Past 3 yrs. NP Growth (%) 79.5

Dividend Payout (%) 7.0

Dividend Yield (%) 0.3

Y/E MARCH 2010 2011E 2012E 2013E

Net Sales (Rs b) 7.8 10.4 13.9 24.4

EBITDA (Rs b) 4.7 6.0 8.0 15.6

NP (Rs b) 4.6 5.2 6.5 11.3

EPS (Rs) 14.0 15.8 19.8 34.6

EPS Growth (%) 81.7 12.9 25.5 74.7

BV/Share (Rs) 56.8 102.8 120.9 150.9

P/E (x) 16.1 14.3 11.4 6.5

P/BV (x) 4.0 2.2 1.9 1.5

EV/EBITDA (x) 15.0 9.7 7.2 3.3

EV/ Sales (x) 9.0 5.6 4.1 2.1

RoE (%) 27.7 19.8 17.7 25.4

RoCE (%) 28.9 24.4 24.4 35.1

STOCK PERFORMANCE (SINCE 19 OCTOBER 2010)

SECTOR: REAL ESTATE

311 February 2011

Premium playOberoi Realty (ORL) is a Mumbai-focused real estate developer. It enjoys

high brand equity and is able to command premium pricing across

product segments. This coupled with low-cost land bank, sound

financials, and high cash flow visibility make it an attractive play on the

Mumbai market. The stock trades at 27% discount to FY12E NAV of Rs310.

Buy for 38% upside.

Distinguished Mumbai-focused play: ORL has ~21.4msf of fully-

paid land in prime locations of Mumbai, suitable for large-format

integrated development. It is a strong brand in Mumbai's RE market

due to its (1) diversified products, (2) superior product quality and (3)

management goodwill, which enable it to command a pricing premium

over peers. Expect ORL to enjoy superior margins given low cost land

parcels and integrated development projects in Mumbai.

High visibility on land bank monetization: Most of ORL's RE

projects are in micro-markets of Mumbai where the RE demand outlook

is buoyant in the medium term. We expect ORL to successfully

monetize its land bank over 6-7 years as its healthy cash position and

hassle-free land imply certainty of execution. This provides high cash

flow visibility, adding to its net cash surplus of ~Rs15b. Besides, ORL

enjoys steady cash flow from its annuity assets, which insulate it

from vagaries of the RE cycle. We estimate ORL to have surplus cash

balance of Rs25b by FY12, which offers a huge opportunity to further

acquire value-augmenting projects.

Triggers and headwinds to the stock: Key triggers: (1) Prudent

use of surplus cash to augment land bank, (2) Broad-based recovery

in commercial and retail markets, and (3) Resolution of pending issues

(e.g. hotel properties in Juhu). Possible headwinds: (1) Land acquisition

challenges due to high cost of land in Mumbai, and (2) Possible hurdles

in JDA/SRA-linked projects.

Stock at 27% discount to FY12E NAV; Buy: We expect ORL to post

35% earnings CAGR over FY10-13. We estimate ORL's FY12 NAV at

Rs310/share and FY13 NAV at Rs342/share based on NPV-based

valuation of its land bank. ORL stock is attractively valued at 11.4x

FY12E EPS of Rs19.8, 6.5x FY13E EPS of Rs34.6 and ~27% discount

to FY12E NAV. We expect ORL to trade at least at par to NAV due to

(1) premium brand equity, (2) strong near term cash flow visibility, and

(3) value unlocking potential of huge surplus cash. Buy with a target

price of Rs310, 38% upside from current levels.

Rs225 BuyBSE SENSEX S&P CNX BLOOMBERG REUTERS17,729 5,310 OBER IN OEBO.BO

200

230

260

290

320

Oct-10 Nov-10 Dec-10 Jan-11 Feb-11

Oberoi Realty Sensex - Rebased

Oberoi Realty

411 February 2011

Distinguished Mumbai-focused play

ORL has ~21.4msf of fully-paid land in prime locations of Mumbai, suitable for large-format

integrated development. It is a strong brand in Mumbai's RE market due to its (1) diversified

products, (2) superior product quality and (3) management goodwill, which enable it to

command a pricing premium over peers. Expect ORL to enjoy superior margins given low

cost land parcels and integrated development projects in Mumbai.

Mumbai, the most resilient RE marketMumbai is the most resilient and rewarding RE market in India in terms of returns oninvestment, product positioning and depth of demand for RE development across segmentsand price points. After the global downturn, the Mumbai market was at the forefront ofrecovery. With steady demand, starting with affordable housing and eventually moving tothe luxury housing vertical, property prices have not only rebounded, but surpassed thepre-downturn peaks in several micro-markets.

However, the recent sharp price appreciation and a bloated supply pipeline has resulted ina cyclical downturn in key locations, particularly Central Mumbai. Still, we expect themedium to long term macro outlook for Mumbai RE to be buoyant for products withattractive value proposition. This is because Mumbai's fundamental growth catalysts remainunaltered: Strong GDP growth, rapid urbanization and improving affordability Mumbai's status as India's financial capital (contributing more than 5% of GDP) Favorable demography with an expanding segment of young, upwardly mobile

professionals A large base of discerning, high-income customers.

Mumbai - a lucrative RE market with superior return potential

Source: Company/MOSL

Mumbai is the most resilient

RE market in India in terms

of returns on investment

Medium to long term macro

outlook for Mumbai RE to be

buoyant for products with an

attractive value proposition

Oberoi Realty

511 February 2011

Between october-10 to September-11, Mumbai contributed ~25% of India's RE volume(number of units) and ~29% of RE capital value of top 7 cities of India.

Hyderabad8%

Chennai6%

Mumbai29%

Pune12%

NCR32%

Bangalore13%

ORL: An attractive Mumbai playWe believe ORL offers an attractive play on the lucrative Mumbai RE opportunity givenits following favorable factors:#1. High concentration of land bank in Mumbai#2. Proven track record, strong management goodwill#3. Low-cost land bank at prime locations, translating to superior margins#4. Leading integrated developer in Mumbai, boosting margins further.

#1. High concentration of land bank in Mumbai

Almost 94% of ORL's saleable area (~21.4msf) is in Mumbai with ~69% of its land banklocated in prime locations in the western suburbs. Along with prime locations and synergiesfrom integrated and a diversified product-mix, ORL's emphasis on contemporary designand quality construction helps it to enjoy premium value for its development. We believeORL is well placed to benefit from the superior return potential of Mumbai market.

Mumbai25%Chennai

6%

Bangalore12%

NCR35%

Pune18%

Hyderabad4%

City-wise sale value (%) during Oct-10 to Sep-11 City-wise absorption volume (%) during Oct-10 to Sep-11

Source: Liases Foras/MOSL

94% of ORL's land bank is concentrated in Mumbai ORL's products straddle diverse segments


Western Suburbs

69%

Central Suburbs

15%

Pune6%

Island City10%

Hospitality9%

Retail4%

Residential58%

Commercial20%

Social infra9%

Oberoi Realty

611 February 2011

#2. Proven track record, strong management goodwill

ORL's promoters have a proven track record and rich experience in the Mumbai REmarket, having delivered ~5msf of RE development in 33 projects over the past threedecades. During the past couple of years alone, ORL delivered 2.2msf, indicating robusttraction in execution.

Key projects delivered by ORLProjects Location Type Year of delivery Area (msf)

Plazo (Ghuman Villa) Juhu Residential Sep-01 0.02

Rehabilitation Project Goregaon Residential May-02 0.06

Beachwood House Juhu Residential Jan-05 0.03

Crest Khar Residential May-06 0.02

Seawind Juhu Residential Oct-06 0.02

Oberoi Woods Goregaon Residential May-08 0.60

Oberoi Springs Andheri Residential Jan-10 0.64

Oberoi Townhouse Goregaon Residential Jun-10 0.04

Oberoi Chambers Andheri Commercial May-04 0.09

Commerz - I Goregaon Commercial Mar-08 0.40

Oberoi Mall Goregaon Retail Mar-08 0.55

The Westin Goregaon Hotel Apr-10 0.38

Oberoi International School Goregaon School Nov-10 0.31

Total 3.16


ORL's integrated development and superior product positioning have given it a strongbrand image. We believe ORL is well placed to capitalize the trend of customer preferencefor (1) integrated development, (2) quality construction and (3) goodwill of the developer.This explains why ORL has been consistently booking sales of ~455 units a year over thepast five financial years.

Strong management goodwill

Lack of transparency and corporate governance issues are key concerns in the RE sector.We believe ORL is favorably placed in this regard given (a) transparency in land acquisition,(b) uncomplicated corporate structure and (c) developer mindset.

(a) Transparency in land acquisition: The ORL management has demonstrated a prudentand transparent approach in acquiring its land. ORL has acquired ~140 acres across fiveprojects since 1998. All the land parcels (a) are fully paid for, (b) have clear titles, and(c) enjoy transparent cost and ownership disclosures.

(b) Uncomplicated corporate structure: ORL has a simple corporate structure withmost of its land holding through wholly owned subsidiaries. We believe this transparentstructure augurs well for better corporate governance.

(c) Developer mindset: ORL has a relatively limited but high quality land bank, expectedto get monetized over 6-7 years. Over the past 3-4 years, ORL focused on converting itsland parcels into landmark developments instead of augmenting its land bank at unreasonableprices. We believe such a development mindset is reflected in its product quality andpremium brand equity, which differentiates the company from the rest.

ORL has a proven track

record and rich experience

in the Mumbai RE market

A strong management track

record and transparent

corporate structure make

ORL a preferred developer

Oberoi Realty

711 February 2011

ORL's corporate structure


Low execution risk: ORL outsources most of its key projects, delegates non-core activitiessuch as design and construction to long-term service providers. ORL has developed astrong relationship with internationally acclaimed architects like SCDA (Singapore), Bentel& Associates (South Africa), HOK (Los Angeles), and domestic contractors like L&T.We believe its outsourcing model mitigates the execution risk involved in large formatprojects and leaves its management free to pursue activities such as land acquisition andsales and marketing.

#3. Low-cost land bank at prime locations, translating to superior margins

ORL's management has been prudent in its land acquisition strategy. Over 1998-2005,ORL acquired four key land parcels for Rs4.7b: (1) ~84 acres at Goregaon Garden City,(2) ~24 acres for Andheri East Splendor, (3) ~7 acres for Andheri-West Springs and (4)~19 acres in Mulund. Its average acquisition cost of these city-centric land parcels hasbeen ~Rs35m/acre. After 2005, Mumbai's land prices went through a strong up-cycle,impacting margins of most RE developers involved in land acquisition through the directroute. However, ORL is strongly placed with a low cost land bank that has monetizationpotential over the next 6-7 years.

Low cost historical land bankParticulars Garden City, Oberoi Splendor, Oberoi Exotica, Oberoi Springs,

Goregaon Andheri Mulund Andheri (W)

Land area (acres) 84 24 19 7

Land consideration (Rs m) 1,068 1,060 2,210 317

Year of purchase 1998-2005 2005 2005 2005

Cost of inherent FSI* (Rs/sf) 292 994 2,695 1,039

* Doesn’t include benefit from incremental FSI from TDR, parking scheme and loading

After 2005 ORL has not acquired land through the direct route but adopted a differentapproach to augment its land bank. In 2007, it entered into a joint development agreement(JDA) with a local developer (Sahana Developer) to develop the saleable area of a slum

ORL holds the Garden City

projects excluding

Oberoi Mall.

Oberoi Mall Private Ltd

holds Oberoi Mall.

Oberoi Constructions

Private Ltd holds Andheri

and Mulund properties.

Oasis Realty holds the

Worli properties.

Siddhivinayak Realties

Private Ltd holds the

disputed Juhu Hotel.

Sangam City Township

Private Ltd, a JV between

ORL, DB Realty and the

Avinash Bhosale group,

holds the Pune project.

Outsourcing non-core

activities to reputed partners

releases management

bandwidth for core activities

ORL’s average

acquisition cost of land

has been only ~Rs35m/acre

Oberoi RealtyLimited

Oberoi

Construction

Private Ltd

Oberoi Mall

Private Ltd

Kingston

Property

Services

Private Ltd

Sangam City

Township

Private Ltd

Kingston

Hospitality

& Developers

Private Ltd

Expression

Realty

Private Ltd

Triumph

Realty

Private Ltd

Siddhivinayak

Realties

Private Ltd

Perspective

Realties

Private Ltd

Oasis

Realty

Zaco

Aviation

100% 100% 100% 36.7% 100% 100% 100%

50% 100%Unincorporated

JVUnincorporated JV

Oberoi Realty

811 February 2011

rehabilitation project in Worli. The project offers ORL a lucrative proposition, since (1)ORL will have a 25-40% share in net revenue (net of construction and S&M costs)depending on actual realization of the project, (2) ORL hasn't incurred upfront capitalexpenditure (only a Rs3b refundable deposit, to be adjusted against revenue share), (3)the JDA partner is responsible for related SRA activities such as evacuation andrehabilitation construction (a significant portion of the work has been completed).

In such an agreement, even in the most pessimistic scenario, ORL stands to profit. Theagreement allows ORL to leverage its brand strength with minimal upfront capitalinvestment and low operational and market risks. We expect ORL to clinch many suchdeals with similarly attractive propositions due to (1) its strong execution track-record and(2) premium branding, which make it a preferred partner for small and unorganised landowners.

Low cost land parcels ensure superior margins

ORL's existing land bank of 21.4msf (~130 acres) is located in Mumbai (western suburbs,Central Mumbai) and Pune, and is suitable for large format development. ORL haspurchased land outright for most of its projects. We believe the management has beenprudent in its land acquisition strategy. Except for Pune (which is still in the land aggregationstage) and Worli (where ORL has entered into a JDA), the remaining land parcels havebeen acquired over 1998-2005, at very lucrative prices. Large low-cost land parcels withextended monetization, and a huge appreciation of property prices over the past five yearsprovide ORL with an opportunity to command superior profit margins in such projects.

ORL's superior marginsParticulars Garden City, Oberoi Splendor, Oberoi Exotica, Oasis Realty,

Goregaon Andheri Mulund Worli

Mode of land acquisition Outright Purchase Outright Purchase Outright Purchase JDA

Year of purchase 1998-2005 2005 2005 2007

Land area (acres) 84 24 19 3

Land consideration (Rs m) 1,068 1,060 2,210 Nil

Saleable area (msf) 11.2 3.1 3.2 2.1

ORL's stake (%) 100 100 100 25-40*

Land cost (Rs/sf) 95.6 341.9 691 NIL

Avg. construction cost (Rs/sf) 3,500 3,500 3,000 6,000

Other development costs (Rs/sf)

(Approvals/TDR/ Parking etc) 1,500 1,500 1,000 NIL

Avg. Market price (Rs/sf) 9,500 10,500 7,500 28,000

ORL's premium pricing (Rs/sf) 11,000 12,000 8,500 32,000

ORL's margin (Rs/sf) 5,904 6,658 3,809 26,000

ORL's margin (%) 54 55 45 81

* Profit sharing ratio depending on sale realization Source: Company/MOSL

#4. Leading integrated developer in Mumbai, boosting margins further

ORL is one of the few integrated development players in Mumbai. Integrated developmentoffers product synergies and pricing premuim, boosting margins further.

Integrated development offers product synergies...

Most of the ORL's land is suitable for large format development and situated in attractivecity-centric locations which are increasingly gaining customers' preference. This helpsORL to develop large integrated projects with different product mixes such as schools,

Land acquisition

through the JDA/JV route

renders opportunity to

leverage on the brand

Low land cost is attributable

to historical acquisition

over 1998-2005

ORL is expected to post

45-80% operating margins

for its Mumbai-centric land,

resulting in superior RoE

Large integrated projects

offer a superior product mix

and product synergy

Oberoi Realty

911 February 2011

hospitals, malls and hotels. It allows the company to (1) position its products better, (2)leverage synergies between different asset classes and command premium pricing, and(3) capture strong RE demand at different price points in the project cycle.

...and pricing premium

ORL's integrated land development strategy has started paying off. Over the past 2-3years, after the early phase of developments, ORL has been receiving a strong responsefrom customers for subsequent phases of monetization. We believe its transformation of alocation from terra incognita to a destination development and synergies between theproduct-mixes of integrated development have boosted its brand image. While initialdevelopments in its Garden City projects like Oberoi Mall, Commerz and Oberoi Woodshave enhanced the image of Goregaon (E) as a preferred micro-market, its projects atJVLR, Andheri (E) (Splendor) have boosted demand for subsequent phases. Besides, itssuperior construction quality, on-time delivery track-record and quality management addto the value of its developments. All these factors contribute to ORL's premium pricing.

Approach to land banks: creating value through integrated development


Garden City: Achieves landmark status in Goregaon, Mumbai

A key example of integrated development has been its Oberoi Garden City projects, amixed-use development in Goregaon (E), in Mumbai's western suburbs. ORL acquired~84 acres of land here for Rs1.07b between 1998-05. The project has saleable area of11.2msf of which ORL has already delivered projects on ~2.3msf with the developmentof Oberoi Woods (residential, 0.7msf), Commerz I (0.4msf), Oberoi Mall (0.55msf) andan international school (0.3msf). The project, located on the Western Express Highway,is beside a "no-development" green zone and offers a permanent view of greenery. Thelater phases of development will comprise residential, office/retail space, a hotel andsocial infrastructure such as a hospital and a school. Projects on ~5msf are ongoing andprojects are being planned on the remaining 3.9msf. Garden City has achieved a statusof destination project due its attractive location and benefits from integrated offerings.Consequently, we expect ORL's upcoming developments here to command premiumpricing compared with its peers.

Value creation through

large format development

enables ORL to command

premium pricing

Low cost largeland parcel

Destination developmentin early phases

Uplifting micro-market's image and

boosting RE demand

Integratedprojects

Productsynergy

Brand creationthrough superior

offerings

Pricing premium

Average land acquisition

cost of Garden City

project is ~Rs100/sf

Garden City at Goregaon (E)

emerged as a preferred

destination

Oberoi Mall,

Commerz,

Oberoi Woods

Average

realization at

Garden City

grew from

Rs2,500/sf (2004)

to Rs12,000/sf

(currently)

Integrateddevelopment

example

Oberoi Realty

1011 February 2011

Integrated development plan at Oberoi Garden City

Oberoi Garden City

Residential

(~6.6msf)

Office Space

(~3msf)

Retail

(~0.6msf)

Hospitality

(~0.4msf)

Social

infrastructure

(~1.6msf)

Oberoi

Woods,

Townhouse

Commerz I Oberoi Mall

The Westin

Mumbai -

Garden City

Completed

projects

Oberoi

Exquisite

(Phases I and II)

Commerz II

(Phases I and II)Ongoing

projects

Oberoi

Exquisite

(Phase III)

Planned

projects

Oberoi

International

School

Hospital and

education

complex

Oberoi Mall

Commerz

and Hotel

Westin

Oberoi

Commerz (II)

- Phase (I)

Oberoi

Woods

Oberoi

International

School

Exquisite- 1

Exquisite- 2

Exquisite- 3

Commerz (II) -

Phase (II)

Educational

ComplexHosipital

Town House

We

ste

rn E

xp

res

s H

igh

wa

y

Integrated layout of Oberoi Garden City project


Oberoi Realty

1111 February 2011

Key ongoing projects at Garden City

Commerz (II)- Phase I and Phase II Exquisite- steady progress in construction

Town house Oberoi International School

Integrated development at Garden City is in an advanced stage of monetization


Oberoi Mall (March 2008)

Commerz I (March 2008) Oberoi Wood (May 2008)

Phase II site

Phase I site

We expect phase I of Commerz-II to be operational by

FY12-13, while phase II is likely to be ready by FY14.

ORL has already sold ~419 units in Exquisite I. Exquisite-

I is likely to be delivered in FY12-13, while it plans to launch

Exquisite II in 4QFY11.

We estimate ORL to complete the monetization of Garden

City by FY16-17.

Once completed, the project is likely to generate ~Rs83b

of total residential sales and ~Rs6b of steady-state annuity

income. Garden City accounts for ~60% of ORL's GAV.

Oberoi Realty

1211 February 2011

High visibility on land bank monetization

Most of ORL's RE projects are in micro-markets of Mumbai where the RE demand outlook is

buoyant in the medium term. We expect ORL to successfully monetize its land bank over 6-

7 years as its healthy cash position and hassle-free land imply certainty of execution. This

provides high cash flow visibility, adding to its net cash surplus of ~Rs15b. Besides, ORL

enjoys steady cash flow from its annuity assets, which insulate it from vagaries of the RE

cycle. We estimate ORL to have surplus cash balance of Rs25b by FY12, which offers a huge

opportunity to further acquire value-augmenting projects.

Hassle-free land bank increases certainty of monetization

We expect RE demand outlook in Mumbai to be buoyant in the medium term, especiallyfor mid-income housing, attractively positioned products and preferred micro-markets likethe western and central suburbs. This has witness further boost from rising demand foroffice space in such locations. About 84% of ORL's saleable area is in attractive city-centric areas of the western and central suburbs, which have potential to emerge asdestination projects due to their large size and mixed use development. Most of the land isfully paid and available for development with approvals largely in place, which givesreasonable certainty to execution. These factors provide ORL with steady cash flowvisibility over five years.

Strong development pipeline to drive monetizationAssets under sale model FY11E FY12E FY13E FY14E FY15E FY16E

Residential (msf) 1.2 1.7 1.6 1.7 1.7 1.1

Commercial (msf) - 0.2 0.3 0.4 0.3 0.1

Retail (msf) - 0.0 0.0 0.1 0.1 0.1

Total 1.2 1.9 1.9 2.3 2.1 1.3

Leased assets (cumulative)

Commercial (msf) 0.2 0.3 0.7 1.7 2.1 2.5

Retail (msf) 0.5 0.5 0.5 0.5 0.5 0.5

Total 0.7 0.9 1.2 2.2 2.7 3.0

Hotel (rooms) 269 269 269 269 314 314

High visibility of cash flow (Rs b)Particulars FY11E FY12E FY13E FY14E FY15E FY16E

Residential sales 11.7 14.3 19.5 23.0 33.8 28.9

Commercial and retail sales 0.0 1.1 2.8 7.2 6.3 1.9

Rental income (commercial and retail) 0.9 1.2 1.7 3.3 4.3 5.0

Hotel business 0.6 0.6 0.7 0.8 1.1 1.1

Social infrastructure business 0.1 0.2 0.4 0.5 0.6 0.0

Total inflow 13.2 17.4 25.1 34.8 46.1 37.0

% contribution from rental income 12 12 11 13 13 17

% contribution from residential sales 88 82 78 66 73 78

Construction capex 5.8 10.2 10.5 10.5 9.3 4.6

Residential 3.1 6.0 7.1 8.4 8.5 4.5

Non-residential 2.7 4.2 3.4 2.1 0.8 0.1

Operating expenses 0.4 0.5 0.6 0.7 0.9 0.9

Net operating cash pre tax 7.1 6.8 14.1 23.6 35.8 31.4

Tax expense 1.8 1.8 4.2 7.1 10.7 9.4

Net operating cash post tax 5.3 5.0 9.9 16.5 25.1 22.0


Hassle free land banks are

suitably placed for faster

monetization

Strong residential sales and

steady annuity income are

expected to generate robust

operating cash flow

Oberoi Realty

1311 February 2011

ORL's development plans are integrated in natureProject Name Status Location Saleable Expected GAV/Share Land cost

area (msf) completion date (Rs) (Rs m)

Goregaon (E) 10.5 223 1,060

Exquisite-1 Ongoing Residential 1.4 Nov-13 30

Exquisite-2 Ongoing Residential 1.3 Mar-14 37

Exquisite-3 Ongoing Residential 2.5 May-14 37

Townhouse/Garden City Completed Residential 0.0 Mar-10 2

Commerz I Completed Commercial 0.4 Mar-08 16

Commerz II – Phase I Ongoing Commercial 0.7 Mar-12 21

Commerz II – Phase II Ongoing Commercial 1.7 Mar-12 41

Oberoi Mall Completed Retail 0.6 Mar-08 22

The Westin Ongoing Hotel 0.4 Mar-10 9

International School Ongoing Social Infrastructure 0.3 Mar-10

Education complex Planned Social Infrastructure 0.9 Apr-11 9

Hospital Planned Social Infrastructure 0.4 Oct-10

Andheri - East 3.1 34 317

Splendor-1 Ongoing Residential 1.3 Dec-10 5

Splendor-2 Ongoing Residential 0.3 Jun-12 6

Oberoi Splendor-1 Ongoing Commercial 0.3 Feb-13 6

Splendor IT Tower Planned Commercial 0.1 Aug-12 5

Oberoi Splendor -2 Planned Commercial 0.7 May-13 10

Splendor School Planned Social Infrastructure 0.4 Apr-11 2

Mulund - West 3.2 78 2,200

Exotica-1 Planned Residential 1.6 Aug-13 17

Exotica-2 Planned Residential 1.6 Sep-13 61

Worli 2.1 27 JDA*

Oasis Ongoing Residential 1.5 Dec-14 20

Oasis - Commercial Ongoing Commercial 0.2 Dec-12 2

Oasis - Mall Planned Retail 0.1 Dec-12 4

Oasis Planned Hotel 0.2 Dec-14 3

Pune 1.3 14 In progress

Sangam City Planned Residential 0.8 Dec-15 8

Sangam City Planned Commercial 0.3 Dec-15 3

Sangam City Planned Retail 0.3 Dec-15 3

Juhu Planned Juhu 1.2 1

Total 21.4 377

* Refundable security desposit of Rs3b Source: Company/MOSL

Commercial recovery to boost annuity cash flow

ORL is likely to be a key beneficiary of recovery in the commercial and retail verticals,early signs of which are visible. While ORL's annuity income helps to compensate for theperiodic volatility in residential sales, we estimate steady growth in revenue contributionfrom annuity assets, with (1) broad-based recovery in the commercial and retail businessesand (2) new projects becoming operational in the office, retail and hotel verticals over nexttwo to three years.

The commercial RE market has been showing early signs of recovery in key micro-markets. Mumbai, being a frontrunner in this recovery, has registered steady improvementin commercial leasing with ~10msf of lease transactions during 2010. Besides, in the pastcouple of years, demand has been shifting from central business districts (CBDs) likeNariman Point and Central Mumbai towards suburban business districts like Andheri andGoregaon. This is due to (1) exorbitant rentals and unavailability of Grade A office spacein the CBDs and (2) improved infrastructure near the western and central suburbs andtheir proximity to the airport.

ORL is likely to be a

key beneficiary of

the commercial

real estate recovery

Oberoi Realty

1411 February 2011

Cash flow during FY11-16 is expected to contribute 67% of GAV

We expect ORL to monetize its land bank over 6-7 years, providing it with strong front-ended cash flow unlike many RE companies. Our NAV estimate suggests ORL willderive ~67% of its GAV from next five years cash flow, which is significantly highcompared with its peers. Front-loaded valuation makes ORL one of the most attractiveplays in the RE sector.

Annual value contribution (%)


Expect ORL commercial projects to witness strong response

ORL has a strong pipeline of annuity projects of ~5.4msf (~1msf already operational and~4.4msf to be operational over 3-4 years) largely located in the western suburbs. ORL's2.4msf of commercial space in the Goregaon Garden City, Commerz II -Phase1 (0.7msf)and Phase2 (1.7msf) are likely to become operational in FY12 and FY13 respectively. Weexpect the projects to attract a strong response due to (a) a robust demand outlook, drivenmainly by MNCs, law firms (on account of the shifting of the High Court to the westernsuburbs) and film studios (proximity to Film City) in Goregaon, (b) limited supply of grade-A office space in the vicinity and (c) proximity to hotels and the airport. ORL's strongclient base with its expansion plan will provide further impetus to the leasing momentum.

We estimate the company will generate ~Rs1.6b in FY11 (v/s Rs0.8b in FY10), ~Rs2b inFY12 and ~Rs2.9b in FY13 from its commercial, retail, hotel and school projects.

Strong momentum expected in annuity income

810

15

20

15

9

212

Till FY12 FY13 FY14 FY15 FY16 FY17 FY18 Capitalizedvalue post

FY18

Front-loaded

cash flow offers

investment comfort

City centric

commercial projects will

witness strong demand


0.7 0.91.2

0.0 0.2 0.3 0.5 0.3

3.02.72.2

0.4

269 269 269 269

394 3946.2

2.01.6

5.94.7

2.9

FY11 FY12 FY13 FY14 FY15 FY16

Annuity Asset (msf) Commercial/RetailSale (msf)Hotel Rooms (no) Annuity Revenue(Rs b)

We expect annuity income to

generate ~Rs1.6b in FY11

(v/s Rs0.8b in FY10),

~Rs2b in FY12 and

~Rs2.9b in FY13

Oberoi Realty

1511 February 2011

Multiple revenue streams provide resilience to the down cycle

ORL's strongly diversified product-mix (the residential vertical constitutes ~60% of itsland bank, and 40% is divided among commercial, retail, hospitality and social infrastructureprojects such as schools and hospitals), means that it is poised to generate a quality mix ofrevenue streams. ORL has maintained a robust balance in its cash flows by following saleand lease models for its ~5.4msf of commercial/retail assets. This provides it with multiplerevenue streams, making it resilient to RE cyclicality.

Multiple revenue streams insulate ORL from a down cycle Annuity income mix (Rs m)


0.7

0.8 1.6 2.0 2.93.5

7.0 8.

8

11.8

21.5

FY09 FY10 FY11E FY12E FY13E

Annuity income (Rsb)

RE sales (Rsb)

288

325

315

497

1,05

0

450

508 61

1

662

695

559

641

729

235

396

FY09 FY10 FY11E FY12E FY13E

Commercial-Lease Retail-Lease Hotel Social Infra

Surplus cash to augment land bank potential

We expect ORL's limited land bank of ~21.4msf, to take 6-7 years to be monetized.Hence, going forward, the company is expected to acquire a significant amount of land tomaintain its growth momentum. In this connection, the comfort factor is that ORL has~Rs15b of surplus cash on its balance sheet. Moreover, robust cash flow visibility from itsongoing/upcoming projects (we expect the company to generate ~Rs10b of operatingcash flow by FY12) and zero gross debt provide ORL with a healthy financial position toaugment its land bank through value accretive acquisitions. While historically the companyacquired land through outright purchase, it is also evaluating opportunities in theredevelopment vertical and through the JDA route, in which, we expect, ORL has strongsuccess potential due to its premium brand and superior execution track record.

A balanced cash flow

mix offers resilience

during a down cycle

Visibility of strong operating cash flow an opportunity to acquire value-accretive projects

515

20 2535

5

10

55

10

16

Net cash as onMarch

IPO proceeds FY11E FY12E FY13E FY14E

Free cash inflow (Rs b)

Cummulative till previous year (Rs b)

5

1520

25

35

51


We expect the company

to generate ~Rs10b

of operating cash flow

by FY12

Oberoi Realty

1611 February 2011

ORL to post revenue CAGR of 46% over FY10-13

We expect ORL's revenue to grow from Rs7.8b in FY10 to Rs24.4b in FY13, implyingFY10-13 CAGR of ~46%. The growth will be led mainly by revenue from residentialprojects and steady annuity income growth from its commercial, retail, hotel and othersocial infrastructure verticals. In FY11, Exquisite-I (Garden City, Goregaon) and Splendor-I (Andheri-E) will be primary revenue drivers (contributing ~70% of revenue). We expectits projects in Mulund (Exotica) and Worli (Oasis) to contribute significantly from FY12.

Expect revenue CAGR of 46% over FY10-13


ORL's primary focus has historically been residential development. However, we expectsteady revenue growth from non-residential projects as ORL has a rich pipeline of non-residential projects (~8msf) and annuity projects (~5.4msf) (~4.4msf will be operationalover 3-4 years) largely located in Mumbai's western suburbs. We expect steady growth inrevenue from its non-residential projects, going forward, with (1) a broad-based recoveryin commercial and retail businesses and (2) new projects becoming operational in theoffice, retail and hotel verticals. We estimate the contribution from its non-residentialprojects to increase from 11% in FY10 to 15% in FY11, 24% in FY12 and 26% in FY13.

0.8

2.4

5.1

7.8

10.4

13.9

4.3 24

.4

191%

117%

-17%

84%

32% 34%

76%

FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E

Revenue (Rs b) Grow th Rate

Key projects expected to contribute to revenue*Project Name Location Asset Class Saleable / Expected total Revenue GAV/share

Leasable revenue (Rsm) Contribution (Rs m) (Rs)

area (msf) FY11 FY12

Oberoi Spring Andheri West Residential 0.64 6,911 855 - 1

Townhouse/Garden City Goregaon-East Residential 0.04 738 360 378 2

Splendor-1 Andheri - East Residential 1.28 13,895 3,203 - 5

Exquisite-1 Goregaon - East Residential 1.37 18,545 4,088 5,433 30

Splendor-2 Andheri - East Residential 0.29 3,345 319 905 6

Exquisite-2 Goregaon - East Residential 1.33 21,216 - 733 37

Exotica-1 Mulund - West Residential 1.62 14,355 - 1,337 20

Exotica-2 Mulund - West Residential 1.58 15,299 - 332 17

Oasis Worli Residential 0.54 19,647 - 1,563 37

Commerz I Goregaon-East Commercial 0.365 315 497 16

Oberoi Mall Goregaon-East Retail 0.553 611 662 22

The Westin Goregaon (E) Hotel 269 rooms 559 641 9

10,309 12,480 201

* Only contribution from larger projects Source: Company/MOSL

Exquisite-I (Garden City,

Goregaon) and Splendor-I

(Andheri E) are primary

revenue drivers for FY11

We expect the Mulund and

Worli projects to contribute

significantly from FY12

We expect a steady increase

in revenue contribution from

the non-residential vertical

Oberoi Realty

1711 February 2011

ORL to post earnings of 35% CAGR over FY10-13

We expect 35% CAGR in ORL's PAT, from Rs4.6b in FY10 to Rs11.3b in FY13. This willbe driven by (1) strong contribution from the residential vertical, and (2) higher rentalincome with new properties becoming operational. Historically, ORL has enjoyed highEBITDA margins due to its presence in attractive locations and its ability to command apremium. We expect ORL's EBITDA margins will improve from 60% in FY10 to 64% inFY13 due to (1) monetization of later stages of integrated development, which offershigher realization, and (2) contribution from its Worli project. However, net margin coulddecline from 58% in FY10 to 47% in FY13 mainly due to (1) a higher tax rate after theabolition of 80IB, and (2) possible debt finance which could invite interest costs, hithertounseen in ORL's financial statements.

EBITDA margin to increase after contribution from Worli project

Revenue: non-residential verticals to increase contribution (FY11-13)


Expect net profit CAGR of 36% over FY10-13

Social Infra1%

Resi-dential85%

Comm-ercial3%

Retail6%

Hotel5%

Resi-dential76%

Comm-ercial11%

Retail6%

Social Infra2%

Hotel5%

Resi-dential74%

Social Infra2%

Hotel3%Retail

5%Comm-ercial16%


0.4

1.2

2.6

2.5 4.7 6.0 8.

0

15.6

52%50%

58%

64%

58%58% 60%

44%


EBITDA(Rsb) EBITDA Margin

0.4 3.0

2.5 4.

6 5.2 6.

5

0.8

11.3

33%

47%47%50%

58%59% 58%

43%


PAT(Rsb)

NET Margin

EBITDA margins are

expected to improve to

64% due to the high-margin

Worli project

Net margin is expected to

decline from 58% in FY10

to 47% in FY13 mainly due

to a higher tax rate

FY11 FY12 FY13

Oberoi Realty

1811 February 2011

Prudent utilization of surplus cash could be a key triggerfor the stock

Key triggers for the stock are: (1) ORL's prudent use of surplus cash to augment its landbank, (2) broad-based recovery in the commercial and retail market, and (3) traction inpending issues (hotel properties in Juhu) and enhancement of incentives in existing projects(Worli and Pune).

Prudent use of surplus cash to augment land bank

Despite a high quality land bank, ORL faces a risk of limited long-term potential of its landparcels. However, ORL has one of the most attractive balance sheets among RE companieswith ~Rs15b of surplus cash. Moreover, its ongoing and upcoming project pipeline providewith a strong cash flow visibility over the next 5-6 years. We estimate an incremental netcash inflow of Rs10b by FY12 (total surplus cash balance estimated at Rs25b by FY12).We believe a judicious deployment of this surplus cash in value accretive land acquisitionwould be a key trigger for the stock.

Broad-based recovery in the commercial, retail market

ORL has ~1msf of operational assets in the commercial and retail segments along with~4.4msf of projects in the pipeline, which are to be operational over 3-4 years. Therefore,with the ongoing recovery in commercial RE, we believe ORL is well placed to leverageon the up-cycle of the commercial/retail vertical, which would favorably impact its annuityincome.

Traction in pending issues (hotel properties in Juhu), enhancement ofincentives in existing projects (Worli and Pune)

The ORL management indicated that OCPL (ORL's 100% subsidiary), through its jointventure SRPL, entered into a purchase agreement with Tulip Hospitality Services in 2005for a six-acre hotel property in Juhu with ORL's share of the development area being~1.3msf. But the purchase agreement is under dispute and has been referred to forarbitration. We value the property at Rs675m, which is the amount paid by the company.Therefore, a positive outcome of the arbitration in favor of ORL would be value accretivefor it. Similarly, a possible increase in saleable area in its Worli project (based on higherFSI allowance for additional land) and the Pune project (since ORL is in the process ofland aggregation), would have a positive impact on its NAV.

Value unlocking is

expected from deployment

of surplus cash

ORL is well placed to

leverage the up-cycle of the

commercial/retail vertical

Oberoi Realty

1911 February 2011

Key headwinds

We believe that the key risks for the company are (1) challenges in land acquisition due toincreasing land costs in Mumbai, (2) possible operational hurdles in JDA/SRA-linkedprojects, and (3) over dependence on Mumbai market.

Increasing land prices could exert pressure on margins

Land prices in Mumbai have appreciated sharply over the past 4-5 years, exerting pressureon developers' margins. ORL has a limited land bank of ~21msf, which we expect willtake 6-7 years to monetize. In the near to medium term, we don't find cause for concerndue to replenishing of the land bank, but ORL needs to focus on augmenting its developmentpotential significantly to replicate its growth momentum in the long term. ORL's existingland bank is historical and its attractive acquisition cost is mainly attributed to the pre-2005RE market, which was before the sharp upswing in prices. After 2007, ORL made nomeaningful land acquisition. The company also doesn't have established expertise in theredevelopment business, which is a key land acquisition route in Mumbai city. Hence, therising land price could be a visible headwind for ORL's land acquisition plans.

Sharp increase in land price visible in recent NTC mill auctions

Source: Industry/MOSL

What mitigates the risk

ORL has one of the most cash rich balance sheets among RE companies with ~Rs15b ofsurplus cash. Besides, with strong monetization visibility from its ongoing and upcomingprojects, ORL is likely to generate robust operating cash flow over 6-7 years. We estimateORL will generate a surplus cash balance of Rs25b by FY12, which offers it a hugeopportunity to acquire value-accretive projects.

Besides, ORL is better off than other its Mumbai peers, who have entered several highvalue land transactions and already leveraged themselves. Hence they are likely to curtailland acquisition plans in the near term. Consequently, ORL is well placed to capture theopportunity to acquire land at reasonable costs.

1,79

8

1,98

3

877

551

11,0

08

12,1

41

5,36

9

3,37

5

2,52

8

1,46

9

1,53

6

6,88

0

7,58

8

3,35

6

2,10

9

1,58

0

918

960

Bharat Mill(Aug-10)

Poddar Mill(Jul-10)

Kohinoor Mill(Jul-05)

ElphinstoneMill (Jul-05)

MumbaiTextile (Jun-

05)

Apollo Mills(Jun-05)

Jupiter Mill(Mar-05)

Rsm/acre Rs/sf for 2.5x FSI Rs/sf for 4x FSI

Increasing land price in

Mumbai could be a key

headwind for ORL’s land

acquisition plans

ORL’s strong surplus cash

renders the ability to

acquire value accretive land

Oberoi Realty

2011 February 2011

Comparative financial strengths of RE developers in Mumbai

*As on Mar-09 (DRHP data); ** As on Mar-10 Source: Company/MOSL

Operational hurdles in key projects could have a negative impact

ORL has highlighted operational complications in its key projects, which could be a majorheadwind for it. Its ~2.1msf mixed-use Worli land (Oasis) could suffer from operationaland regulatory uncertainties relating to SRA projects and dependence on JDA partners.Its Pune project (Sangam City) is yet to receive requisite development approvals sinceORL is in the land aggregation stage. We believe defaults or delays could have a negativeimpact on its value, since the two projects contribute ~11% of GAV.


ORL's developable area in Worli is in the free-sale area of the SRS project and the land isfree from encumbrances. The project has been issued a Letter of Intent (LOI) andrehabilitation work is on. Hence the project has overcome a significant operation hurdleand has limited execution challenges.

Dependence on western Mumbai

Almost 94% of ORL's land bank and over 96% of its GAV emerges from its Mumbaiprojects, with the western suburbs (projects in Goregaon and Andheri) contributing ~68%of its GAV. This makes it over-dependent on the RE market of the western suburbs. Theabsence of market diversification exposes ORL to vagaries of a single RE market. Therecent price appreciation in Mumbai's residential market has resulted in a slow salesacross locations, which could have a negative impact on ORL's monetization velocity andability to command premium pricing.


ORL's positioning offers comfort even during the torpidity in RE demand due to:

a) Attractive locations, superior quality make ORL's products preferable: AllORL's projects are in attractive city-centric locations. The projects have good ambience,greenery and facilities emerging from the product-mix such as schools, hospitals, mallsand hotels in the same land parcel. This enhances a project's attraction and makes it apreferred destination for home buyers. Besides, ORL's quality construction and premiumoffering increase salability.

5 4

33

8

41

29

-2

210 7

27

-15

38

-15O

bero

iR

ealty

Pen

insu

la** D

BR

ealty

Indi

abul

lsR

E

Orb

it **

HD

IL

Lodh

a *

Gross Debt (Rs b) Net Debt (Rs b)

Possible operational risk

at its SRA-linked project

in Worli has vastly

been mitigated

with steady progress

A stronger balance sheet

compared with its peers and

a market slowdown will offer

an opportunity to acquire

land at reasonable costs

A lack of market

diversification exposes

ORL to the risk of relying on

a single RE market

Oberoi Realty

2111 February 2011

b) Strong financial position mitigates execution risk: Slow RE demand in Mumbaican be attributed to buyers' concerns about possible execution challenges developerscould face in the light of a financially tight market. The sharp appreciation of Mumbaiproperty prices also contributed to slow RE demand. However, ORL's zero-debt,surplus-cash position would mitigate buyers' concerns. ORL's established track recordand strong management goodwill ensure on-time delivery and uninterrupted execution.

Macro economic risks

We have assumed 5% CAGR from FY11 for all projects across cities. However, a declinein property prices, rise in inflation and interest rate, and change in government regulationcould have a significant impact on our NAV estimate. Due to lack of predictability of suchevents we have not incorporated such impacts.

Product positioning,

attractive location, low cost

land and better holding

capacity offer comfort

Oberoi Realty

2211 February 2011

Valuation and view

We estimate ORL's FY12 NAV at Rs310/share and FY13 NAV at Rs342/share based onan NPV-based method of valuing its land bank. We expect ORL to trade at par to ourestimated FY12 NAV due to (1) value unlocking potential of huge surplus cash, (2) strongnear term cash flow visibility and (3) premium brand equity. Our one year forward targetprice for ORL is Rs310. We expect ORL to post 35% earnings CAGR over FY10-13.ORL is attractively valued at 11.4x FY12E EPS of Rs19.8 and 6.5x FY13E EPS of Rs34.6and ~27.4% discount to our target price of Rs310. Buy.

FY12 NAV calculationRs m NAV/share (Rs) % GAV

Residential 73,011 222 59

Commercial (Lease) 25,609 78 21

Commercial (Sale) 8,289 25 7

Retail (Lease) 7,106 22 6

Retail (Sale) 2,047 6 2

Hotels 3,494 11 3

Infra Business+Land holding 4,164 13 3

Gross Asset Value 123,720 377 100

Add: Cash 15,000 46 12

Less: Other Op Exp 9,898 30 8

Tax 27,136 83 22

Net Asset Value 101,686 310 82


NAV calculation: Key assumptions

1. Our NAV estimate factors in development plans that will be executed over 6-7 years.2. 5% CAGR in RE prices across cities and verticals (residential, commercial and retail).3. 4% CAGR in construction cost for all verticals.4. Steady state occupancy rates of 90% in the commercial and retail segments.5. Steady state occupancy rates of 70% in the hospitality segments.6. Cap rate of 11% in the commercial, retail and hospitality verticals.7. WACC of 14%.

Pune4%

Worli7%

Mulund (W)21%

Andheri (E)9%

Gore-gaon (E)

59%

Western suburbs contribute ~68% Commercial/retail verticals contribute ~Rs130/sh to ORL's GAV of Rs377/sh


222

78 25 22 6 11 1346 30

83

310

Res

iden

tial

Com

mer

cial

(Lea

se)

Com

mer

cial

(Sal

e)

Ret

ail (

Leas

e)

Ret

ail (

Sal

e)

Hot

els

Infr

aB

usin

ess+

Land

hold

ing

Add

: Cas

h

Less

: Oth

er O

pE

xp

Tax

NA

V

Residential projects

contribute ~50% of GAV

while ~36% comes from

commercial/retail properties

Expect ORL to trade at

FY12 NAV of Rs310

Oberoi Realty

2311 February 2011

What could push the stock to trade above NAV

We estimate ORL's FY12 NAV at Rs310/share and FY13 NAV at Rs342/share. Our oneyear forward target price for ORL is Rs310 (at par with its FY12NAV). However, wefollow an NPV-based NAV approach to value RE companies based on their land banks,which captures value emerging from their existing development potential only. In thisregard, we believe ORL could trade at a premium to its FY12NAV due to its (1) valueunlocking potential of its huge surplus cash and (2) strong brand equity, which helps it tocommand premium pricing power.

Value unlocking potential of huge surplus cash: ORL has one of the most cash richbalance sheets among RE companies with zero gross debt. As on date, the company has~Rs15b of surplus cash on its balance sheet.. Besides, with strong monetization visibilityfrom its ongoing and upcoming projects, ORL is expected generate healthy free cash flowover 6-7 years. We estimate an incremental net cash inflow of Rs10b by FY12 (enhancingthe surplus cash balance to Rs25b by FY12) after addressing its requirement for constructioncapex, operating and tax expenses. We believe such financial strength offers opportunityof value-accretive land acquisitions to drive growth potential beyond the land bank.

Despite the large amounts of idle cash on its books, ORL has had a robust RoE (averageRoE of 24.7% over FY08-10) due to its (1) premium pricing and (2) low cost land, leadingto superior margins. Besides, ORL's zero debt scenario offers tremendous potential toplay on leverage. This speaks volumes about its value unleashing potential throughdeployment of surplus funds in high RoE projects. Our NPV-based NAV estimate valuesnet cash on books of ~Rs15b at Rs46/share. However, the acquisition of projects withattractive RoE could add to value accretion beyond its book value. With an RoE assumptionof 22% and 0.2x (of cash balance) leverage, surplus cash could be valued at Rs63/shareor ~37% premium to its book value of Rs46/share. This value unlocking potential explainswhy we expect ORL to trade at a premium to its NAV.

Surplus cash per share sensitivity to RoE and leverage (Rs)If surplus cash With leverage of (x)

gives RoE of (%) 0 0.1 0.2 0.3 0.4

20 56 58 59 60 61

22 60 62 63 65 66

24 64 66 68 70 72

26 69 71 73 75 78


Strong brand equity, premium pricing power: ORL has focused mainly on the midincome housing segment and created a premium positioning within this market. This is dueto (a) strong brand equity, (b) integrated product positioning in attractive locations, and (c)superior product quality. However, recently the company has also entered into premiumprojects at Worli through a JDA model, where its brand equity has enabled it to acquirehigh quality land at an attractive proposition. We believe its premium brand equity makesORL a preferred partner for (1) redevelopment and (2) joint-development projects, whichaugur positively for value-accretive project acquisitions going forward.

Value unlocking from

surplus cash could drive

growth potential beyond the

existing land bank

An RoE of 22% and 0.2x

(of cash balance) leverage

could render ~37% premium

to ORL’s book value of cash

at Rs46/share

ORL’s brand equity makes it

a preferred partner in

(1) redevelopment and

(2) joint-development

projects

Oberoi Realty

2411 February 2011

Sensitivity of NAV to change in realizations (Rs/share)Change in realization -20% -10% 0% 10% 20%

Residential 169 196 222 249 276

Commercial (Lease) 78 78 78 78 78

Commercial (Sale) 19 23 25 31 36

Retail (Lease) 22 22 22 22 22

Retail (Sale) 5 5 6 7 8

Hotels 11 11 11 11 11

Infra Business+Land holding 12 12 13 12 12

Gross Asset Value 315 347 377 410 441

Add: Cash 46 46 46 46 46

Less: Other Op Exp 25 28 30 33 35

Tax 69 76 83 90 97

Net Asset Value 267 289 310 333 355

% change in NAV (13.9) (7.1) - 7.1 14.6

Sensitivity of NAV to price and WACC (Rs/share) Change in realization -20% -10% 0% 10% 20%

WACC

13% 276 298 320 342 364

14% 267 289 310 333 355

15% 258 280 302 324 346

FY12E EPS (Rs) 15.8 17.9 19.8 22.2 24.2

Even with 20% drop from assumed price, stock is 'in the money'Over the last one year, Mumbai's residential prices has appreciated sharply. This hasresulted in a huge volume slowdown across Mumbai's residential micro-markets. However,we consider this slowdown a short-term phenomenon emerging from the cyclical natureof the sector. We believe medium-term growth prospects for the RE sector in Mumbai isrobust due to (a) huge inherent demand in asset classes, (b) much-hyped oversupplypipeline on paper and limited physical supply of completed projects and (c) all the macro-economic fundamentals being unaltered for the market.

However, we have assumed realistic price and absorption schedules for ORL’s projectsconsidering an ongoing slowdown in the market. In this regard, we have also analyzed thesensitivity of the stock due to a possible price correction. However, we believe this pricecorrection, if any, is likely to impact the residential vertical only, since the ongoing leaserentals in the commercial and retail verticals, in our opinion, has bottomed out and is in thestabilization phase with visible recovery in these verticals.

In our sensitivity analysis we have assumed a price correction across ORL's (a) residentialprojects and (b) commercial/retail projects under the sale model, and we have maintainedour base case lease rental assumption for commercial/retail projects under the lease model.Our study suggests that with a price correction of 20% for its projects under the salemodel ORL's FY12 NAV would be down to Rs267/share (~14% from the base caseNAV of Rs310/share), implying an upside potential of ~19% at current prices.

The stock is exposed to

limited down side risk in the

event of a price correction

20% price correction

in developement projects

to have only 14%

impact on NAV

Oberoi Realty

2511 February 2011

Key assumptions in our NAV estimate (Rs)Projects Product Type Location Saleable Area (msf) Realization (FY11) Cost/sf Completion

Splendor-1 Residential Andheri - East 1.28 14,000 3,200 FY11

Exquisite-1 Residential Goregaon - East 1.37 14,000 3,500 FY13

Splendor-2 Residential Andheri - East 0.29 11,000 3,200 FY14


Exotica-1 Residential Mulund - West 1.62 8,000 3,000 FY15

Exotica-2 Residential Mulund - West 1.58 8,000 3,000 FY17


Oasis Residential Worli 0.54 32,000 5,500 FY16

Sangam City Residential Pune 0.77 5,500 1,700 FY16

Oasis - Commercial Commercial Sale Worli 0.08 30,000 5,000 FY14

Oberoi Splendor-1 Commercial Sale Andheri - East 0.32 9,500 3,000 FY14

Oberoi Splendor -2 Commercial Sale Andheri - East 0.71 9,500 3,000 FY15

Sangam City Commercial Sale Pune 0.28 7,000 1,700 FY17

Commerz I Commercial Lease Goregaon-East 0.37 120 3,000 FY08

Commerz II – Phase I Commercial Lease Goregaon-East 0.73 110 3,000 FY12

Commerz II – Phase II Commercial Lease Goregaon-East 1.66 110 3,000 FY13

Oasis - Mall Retail Sale Worli 0.04 30,000 5,000 FY14

Sangam City Retail Sale Pune 0.28 7,000 1,800 FY16

Oberoi Mall Retail Lease Goregaon-East 0.55 100 2,800 FY08

The Westin Hotel Goregaon-East 269 7,000 5,500 FY10

Oasis Hotel Worli 45 10,000 6,000 FY15


We believe ORL’s limited downside risk to a price correction would be primarily due to itsannuity projects which render it a strong support during a downcycle.With the recovery ofcommercial vertical, we expect its annuity properties to witness a strong upside goingforward.

Moreover, ORL has low cost land bank and enjoys a superior margins across projects. Webelive this provides with a huge flexibility to cut prices without significant impact on itsmargins and achieve higher sales velocity. Our sensitivity analysis doesn’t capture theupside risk arising out of price rationalizations due to its subjectivity.

We consider the company to be an attractive bet with (a) its ability to leverage the buoyancyof the Mumbai RE market and (b) limited impact from market slowdown.

Oberoi Realty

2611 February 2011

Comparative valuation

ORL is trading at 27% discount to FY12 NAV ORL is trading at 34% discount to FY13 NAV


Real Estate: Comparative valuationsCompany Rating CMP Mcap FY12 FY13 TP* Up- EPS P/E P/B RoE

(Rs) (Rs b) NAV NAV (Rs) side (Rs) (x) (x) (%)

(Rs) (Rs) (%) FY11E FY12E FY11E FY12E FY11E FY12E FY11E FY12E

DLF Buy 242 415 367 397 338 39.5 10.8 12.6 22.3 19.2 1.5 1.5 6.3 7.3

Unitech Buy 38 92 93 107 61 60.0 3.0 4.1 12.7 9.2 0.9 0.9 6.5 8.3

IBREL Buy 107 43 256 291 166 55.0 5.5 6.9 19.5 15.5 0.4 0.4 2.1 2.6

HDIL UR 129 53 348 NA NA NA 21.2 25.1 6.1 5.1 0.6 0.6 9.8 10.9

Anant Raj Buy 99 29 185 200 150 51.4 6.6 7.9 15.1 12.6 0.8 0.7 5.3 6.0

Phoenix Mills Buy 184 27 258 288 260 41.3 6.6 7.8 27.9 23.6 1.6 1.5 5.7 6.4

Mah Life Buy 314 13 593 604 453 44.3 32.2 43.5 9.8 7.2 1.2 1.3 12.0 14.1

Brigade Buy 95 11 172 197 148 55.3 12.0 16.1 7.9 5.9 1.0 0.9 12.1 14.8

Puravankara Neutral 105 22 135 155 124 18.0 7.9 9.1 13.3 11.5 1.4 1.3 10.5 11.0

Peninsula Neutral 59 16 100 105 84 42.5 11.9 13.2 5.0 4.5 1.2 1.0 28.3 29.4

GPL Neutral 576 40 686 777 700 21.5 16.3 39.5 35.2 14.6 4.4 3.4 13.1 26.1

Oberoi Realty Buy 225 74 310 342 310 37.8 15.8 19.8 14.3 11.4 2.2 1.9 19.8 17.7

*TP: Target price Source: Company/MOSL

NAV Prem. / Disc. (%)

-62 -63 -59

-47 -46 -45

-34-29 -27 -22

-16

HD

IL

IBR

EL

Uni

tech

Mah

Life

Ana

nt R

aj

Brig

ade

DLF

Pho

enix

Obe

roi

Rea

lty

Pur

vank

ara

God

rej

Pro

p

NAV Prem. / Disc. (%)

-65 -63 -62

-52 -50 -48-44

-39-36 -34 -32

-26

Uni

tech

IBR

EL

HD

IL

Brig

ade

Ana

nt R

aj

Mah

Life

Pen

insu

la

DLF

Pho

enix

Obe

roi

Rea

lty

Pur

vank

ara

God

rej

Pro

p

Oberoi Realty

2711 February 2011


ORL's land bank: Location wise (MSF)Western suburbs Central suburbs Island City Pune Total

Residential 6.8 3.2 1.5 0.8 12.3

Commercial 3.9 - 0.2 0.3 4.4

Retail 0.6 - 0.1 0.3 1.0

Hospitality 1.7 0.2 1.9

Social Infra 2.0 2.0

Total 14.9 3.2 2.1 1.3 21.4

ORL's land bank: Development status wise (MSF)Completed Annuity assets Ongoing Upcoming Total

Residential NA 5.8 6.5 12.3

Commercial 0.4 3.7 0.4 4.4

Retail 0.6 0.1 0.3 1.0

Hospitality 0.4 0.2 1.3 1.9

Social infra - 0.3 1.7 2.0

1.3 10.1 10.1 21.4


Background

Oberoi Realty Limited is a Mumbai-based real estate developer. It was incorporated inMay 1998 as Kingston Properties Private Ltd. The name of the company changed toOberoi Realty Private Ltd in October 2009. It was converted into a public limited companyin December 2009. ORL's primary focus is to develop residential property but it hasdiversified into retail, commercial, hospitality and social infrastructure projects. Thepromoters have a proven track record in the Mumbai RE market since 1983. ORL hasundertaken ~5msf of RE development across 33 projects so far, which provides it withrich experience in the Mumbai RE market. In October 2010, ORL raised ~Rs10.3b througha public issue of 36.9m shares. The stated objectives for the issue been: (1) constructionfunding of key ongoing and planned residential and commercial projects, and (2) to acquireland or land development rights.

ORL's corporate structure

ORL has undertaken

~5msf of RE development

across 33 projects

ORL has a 21.4msf land

bank in Mumbai and Pune

ORL holds the Garden City

projects excluding

Oberoi Mall.

Oberoi Mall Private Ltd

holds Oberoi Mall.

Oberoi Constructions

Private Ltd holds Andheri

and Mulund properties.

Oasis Realty holds the

Worli properties.

Siddhivinayak Realties

Private Ltd holds the

disputed Juhu Hotel.

Sangam City Township

Private Ltd, a JV between

ORL, DB Realty and the

Avinash Bhosale group,

holds the Pune project.

Oberoi RealtyLimited

Oberoi

Construction

Private Ltd

Oberoi Mall

Private Ltd

Kingston

Property

Services

Private Ltd

Sangam City

Township

Private Ltd

Kingston

Hospitality

& Developers

Private Ltd

Expression

Realty

Private Ltd

Triumph

Realty

Private Ltd

Siddhivinayak

Realties

Private Ltd

Perspective

Realties

Private Ltd

Oasis

Realty

Zaco

Aviation

100% 100% 100% 36.7% 100% 100% 100%

50% 100%Unincorporated

JVUnincorporated JV

Oberoi Realty

2811 February 2011

Annexure : Project location

ORL has integrated projects

location in Goregaon,

Andheri, Mulund and Worli

Oberoi Realty

2911 February 2011

Oberoi Splendor

Oberoi Splendor is a mixed-use development, comprising residential, office space andsocial infrastructure projects, on approximately 21.50 acres of land in Andheri (E) a westernsuburb of Mumbai. The project is located on the Jogeshwari Vikhroli Link Road (JVLR)and has total saleable area of ~3msf. ORL acquired this land from Madhu Fantasy LandPvt. Ltd and Avinash Bhosale in 2005 at Rs1.06b.The development is located near thearterial Western Express Highway and overlooks Aarey Milk Colony, a 3,160 acreno-development green zone. This development site is being developed by its wholly-ownedsubsidiary, OCPL.

Residential plot

Oberoi Prisma

Integrated layout of Splendor (Andheri E) project

~1,200 units (out of 1,296 units) have been sold in Splendor I

Constructions have commenced in Grande(Residential) and Prisma (Commercial)

Oberoi Grande School Plot

Splendor I

Splendor II(Grande)

IT Tower

CommericalPhase-I

CommericalPhase-II(Prisma)

School

Plot

JVLR

ORL has already sold 37

units in Splendor

Grande and ~93% in

Oberoi Splendor

Oberoi Realty

3011 February 2011

Rehab building

Oberoi Oasis

Oasis Realty is a joint venture between ORL's wholly-owned subsidiary, OCPL, SkylarkBuild and Shree Vrunda Enterprises to develop a mixed-use development of approximately2.1msf of saleable area in Worli, located on the arterial Annie Besant Road. As a jointventure partner, OCPL will be responsible for developing the free-sale portion arisingfrom the slum redevelopment project being undertaken on the property. The rehabilitationcomponent of the slum redevelopment project is the responsibility of the other joint-venturepartners. OCPL would receive 25-40% of net revenues (gross revenue less constructioncost) from sale of residential, office space and retail components. Provided constructionof hotel is completed by OCPL, it would receive 36.25% of net revenues from the hotel.

OasisCommerical /Retail / Hotel

OasisResidential

Rehab Buildings

Layout of Oasis project at Worli

Dr. Annie

Besant Road

Excavation work commenced in Worli plots

Residential plot

Commercial and hotel plot

Expect Oasis residential will

be launched in 1HFY12

Oberoi Realty

3111 February 2011

Oberoi Exotica

Oberoi Exotica is a residential development on approximately 18.3 acres of land in Mulund(W) a central suburb of Mumbai. The development is located on LBS Marg, a key road inthe central suburbs, and overlooks the Borivali National Park. The project has a totalsaleable area of ~3.2msf and is divided into two phases: Exotica-I has a salable area of1.6msf comprising ~890 units while Exotica-II has a saleable area of 1.6msf with 869units. ORL acquired this land for Rs2.2b in 2005 from GlaxoSmithKline PharmaceuticalsLimited. ORL expects to launch the projects by 4QFY11.

Oberoi Sangam City project at Pune

ORL holds a 31.67% interest in Sangam City Township Private Limited (Sangam CityTownship), an SPV, established for a development project comprising approximately 56acres of land located in Sangamwadi, Pune, and surrounded by the Mula Mutha River onthree sides. The land is situated 2km from Pune Railway Station and 6km from PuneInternational Airport.

The project will be developed as a mixed-use development, comprising residential, officespace and retail components. This agricultural land parcel was acquired through individualagreements with the land owner since 2007. The SPV would be responsible for obtainingapproval related to land conversion. While the land aggregation process in still continuing,ORL has made the cash payment partly by disbursing and partly keeping it in an escrowaccount.

Projects at Mulund are

likely to be launched in

4QFY11 and land

aggreation is progressing

in Pune

Oberoi Realty

3211 February 2011

Financials and valuation

INCOME STATEMENT (Rs Million)

Y/E March 2008 2009 2010 2011E 2012E 2013E

Net Sales 5,112 4,255 7,836 10,382 13,865 24,383

Change (%) 117.4 (16.8) 84.2 32.5 33.5 75.9

Construction expenses 2,504 1,695 3,094 4,150 5,567 8,491

Staff Cost 33 87 70 259 284 313

EBITDA 2,575 2,474 4,672 5,973 8,014 15,579

% of Net Sales 50.4 58.1 59.6 57.5 57.8 63.9

Depreciation 19 73 91 130 174 189

Interest 0 4 - - - 248

Other Income 474 295 218 545 1,119 1,158

PBT 3,029 2,692 4,800 6,387 8,958 16,300

Tax 69 177 226 1,214 2,464 4,955

Rate (%) 2.3 6.6 4.7 19.0 27.5 30.4

Adjusted PAT 2,954 2,521 4,582 5,174 6,495 11,345

Change (%) 277.5 (14.6) 81.7 12.9 25.5 74.7

BALANCE SHEET (Rs Million)

Y/E MARCH 2,008 2,009 2,010 2011E 2012E 2013E

Share Capital 26 26 2,887 3,282 3,282 3,282

Reserves 11,395 13,840 15,392 30,087 36,027 45,895

Net Worth 12,204 14,437 18,637 33,728 39,669 49,536

Loans 1,435 107 - - - 4,954

Capital Employed 13,640 14,544 18,637 33,728 39,669 54,490

Gross Fixed Assets 477 2,837 3,258 4,362 4,736 5,841

Less: Depreciation 31 101 190 209 230 253

Net Fixed Assets 446 2,736 3,068 4,153 4,507 5,588

Capital WIP 3,917 3,851 5,103 5,307 6,497 6,458

Curr. Assets 8,991 11,794 16,517 34,007 40,287 54,194

Inventory 5,504 7,127 6,243 8,885 11,958 11,893

Debtors 501 272 404 831 1,387 2,438

Cash & Bank Balance 461 1,669 3,631 15,986 16,543 27,671

Loans & Advances 2,526 2,725 6,240 8,306 10,399 12,192

Current Liab. & Prov. 3,548 3,993 6,843 10,933 12,815 12,944

Creditors 3,540 3,962 6,746 10,909 12,792 12,920

Provisions 9 31 97 24 24 24

Net Current Assets 5,443 7,801 9,675 23,075 27,471 41,250

Misc. Expenses - - - - - -

Application of Funds 13,640 14,544 18,637 33,728 39,669 54,490

E: MOSL Estimates

Oberoi Realty

3311 February 2011

Financials and valuation

RATIOS

Y/E March 2008 2009 2010 2011E 2012E 2013E

Basic (Rs)

Adjusted EPS 9.0 7.7 14.0 15.8 19.8 34.6

Growth (%) 277.5 (14.6) 81.7 12.9 25.5 74.7

Cash EPS 9.1 7.9 14.2 16.2 20.3 35.1

Book Value 37.2 44.0 56.8 102.8 120.9 150.9

DPS 1.4 0.6 4.0 1.0 1.5 4.0

Payout (incl. Div. Tax.) 9.7 7.0 28.4 7.1 8.5 13.0

Valuation (x)

P/E 25.4 29.8 16.4 14.5 11.6 6.6

Cash P/E 25.3 29.0 16.1 14.2 11.3 6.5

EV/EBITDA 29.6 29.8 15.3 9.9 7.3 3.4

EV/Sales 14.9 17.3 9.1 5.7 4.2 2.2

Price/Book Value 6.2 5.2 4.0 2.2 1.9 1.5

Dividend Yield (%) 0.6 0.3 1.7 0.4 0.7 1.7

Profitability Ratios (%)

RoE 27.6 18.9 27.7 19.8 17.7 25.4

RoCE 23.3 19.1 28.9 24.4 24.4 35.1

Leverage Ratio

Debt/Equity (x) 0.1 0.0 - - - 0.1

CASH FLOW STATEMENT (Rs Million)

Y/E MARCH 2008 2009 2010 2011E 2012E 2013E

PBT before Extraordinary Items 3,029 2,692 4,800 6,387 8,958 16,300

Add : Depreciation 19 73 91 130 174 189

Interest 0 4 - - - 248

Less : Direct Taxes Paid 69 177 226 1,214 2,464 4,955

(Inc)/Dec in WC 498 1,150 (87) 1,044 3,839 2,651

CF from Operations 2,476 1,448 4,759 4,260 2,830 9,131

(Inc)/Dec in FA (1,937) (2,297) (1,675) (1,419) (1,719) (1,232)

(Pur)/Sale of Investments (3,842) 3,692 (640) (404) - -

CF from Investments (5,779) 1,395 (2,315) (1,823) (1,719) (1,232)

(Inc)/Dec in Net Worth 287 (127) 923 10,288 0 0

(Inc)/Dec in Debt (1,708) (1,328) (107) - - 4,954

Less : Interest Paid 0 4 - - - 248

Dividend Paid 288 177 1,299 369 554 1,477

CF from Fin. Activity (1,709) (1,635) (483) 9,919 (554) 3,229

Inc/Dec of Cash (5,012) 1,208 1,961 12,355 557 11,128

Add: Beginning Balance 5,473 461 1,669 3,631 15,986 16,543

Closing Balance 461 1,669 3,630 15,986 16,543 27,671

E: MOSL Estimates

Motilal Oswal Company Gallery

This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. Motilal OswalSecurities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for public distribution and has been furnished to you solelyfor your information and should not be reproduced or redistributed to any other person in any form.

The report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon such. MOSt orany of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in theinformation contained in this report. MOSt or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regardingany matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement. Therecipients of this report should rely on their own investigations.

MOSt and/or its affiliates and/or employees may have interests/ positions, financial or otherwise in the securities mentioned in this report. To enhance transparency,MOSt has incorporated a Disclosure of Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report.

Disclosure of Interest Statement Oberoi Realty1. Analyst ownership of the stock Yes2. Group/Directors ownership of the stock No3. Broking relationship with company covered No4. Investment Banking relationship with company covered No

This information is subject to change without any prior notice. MOSt reserves the right to make modifications and alternations to this statement as may be requiredfrom time to time. Nevertheless, MOSt is committed to providing independent and transparent recommendations to its clients, and would be happy to provideinformation in response to specific client queries.

For more copies or other information, contactInstitutional: Navin Agarwal. Retail: Manish Shah

Phone: (91-22) 39825500 Fax: (91-22) 22885038. E-mail: [email protected]

Motilal Oswal Securities Ltd, 3rd Floor, Hoechst House, Nariman Point, Mumbai 400 021

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