Research report on Orbit Corporation Ltd. (OCL)
Orbit Corporation Ltd. (OCL) is into real estate construction and development with primary focus on redevelopment of existing properties. OCL specializes in developing, designing and managing high-end ‘Build-to-suit’ residential and commercial properties and is currently focusing on redevelopment of residential properties in Mumbai. OCL’s projects are located At premium locations across Mumbai like Napean Sea road, BKC, Lower Parel, etc.. OCL is also targeting to acquire small plots in MMR (upto 1000 sq mtr) through Orbit Residency (100% owned subsidiary), which we believe can be an additional growth driver for the company. Currently, Orbit has 17 ongoing projects (total area of ~1,136,575 sq ft, area sold ~667,923 sq ft), with all expected to attain completion by FY11E. OCL also has another 8 projects (estimated saleable area of 2,119,507 sq ft) in pipeline, with negotiations for most of the projects likely to be completed within FY09.
OCL has witnessed strong pre selling in the last couple of quarters (Rs.15572.2mn as on July 2008), for which revenue is still un-recognized; revenue recognition will be in proportion to the OCL’s project completion (25% is the threshold limit). OCL has sold properties worth Rs.15,572mn as on July 2008, against which it has recognized only Rs.9,789mn. Hence, OCL still has Rs.5,783mn to be recognized which will enable OCL’s revenue to grow at a CAGR of 21% through FY08-FY10E. We hereby initiate coverage on OCL with Accumulate rating and target of Rs.358.
Redevelopment projects: High operating margin with low cost of acquisition
Redevelopment business is considered a high margins business with scope for value addition along with lower cost of acquisition and staggered cash outflow. OCL has reported strong profitability backed by its strategy of acquiring and developing land at premium locations in Mumbai city.
Strong presale – likely to help revenue booking in future
OCL have been able to presale a strong set of properties in last 1 year, backed by its presence in premium locations across Island city like Napean Sea road, BKC, Lower Parel, etc. OCL still has Rs.5.8bn presold un-booked revenue from these properties as on 30th June 2008, which will be recognized in the coming years.
Looking for diversification through different subsidiaries and acquisitions
During Q1FY09, OCL has acquired 85% stake in Ahinsa Buildtech at a cost of Rs.1300.0mn, which will give OCL right to develop the Orkay mills project with a saleable area of 275,000 sq ft, where it plans to develop a 5 star Residential Serviced Apartment with office complex having state of the art facilities. Furthermore OCL has also floated a wholly-owned subsidiary, Orbit Residency, to primarily focus on acquisition and execution of smaller projects (up to 1,000 sq mtr).
Niche business model justifies attractive valuation
We have valued OCL based on its NPV arising from the current ongoing as well as projects in pipeline. The NPV of its ongoing properties comes at Rs.12.8bn translating into Rs.313 per value of per share, while Rs.45 per share translates from its projects in pipeline. Our target price of Rs.358 is based on our 12-month forward NPV estimate of Rs.14.6bn. At our target price of Rs358, OCL will be trading at 6.1x and 5.7x times of FY09E and FY10E earnings respectively.
-a report by Systematix Shares & Stocks (I) Ltd.
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