Oberoi Realty Limited is tapping the capital markets with an IPO which has opened on Wednesday the 6th of October and closes on Friday the 8th of October. The issue price band is Rs 253-260 and the issue is for 395.62 lakh shares. The company has made an allocation to anchor investors of 71.21 lakh shares at the top end of the price band.
| Price Band | Rs 253-Rs 260 |
| Issue size in Rs | Rs 1,000.92 crs at Rs 253 to Rs 1,028.61 crs at Rs 260 |
| Offer size in shares | 3,95,62,000 Equity shares |
| Anchor Investors | 71,21,160 Equity shares |
| QIB’s | 1,66,16,040 Equity Shares after allocation to anchor investors |
| Non Institutional Investors | 39,56,200 Equity Shares |
| Retail Investors | 1,18,68,600 Equity Shares |
| Marketcap post issue | Rs 8,304.30 crs to 8,534.06 crs |
| Book Running Lead Manager | Kotak Mahindra Capital Company Limited |
| Enam Securities Private Limited | |
| J. P. Morgan India Private Limited | |
| Morgan Stanley India Company Private Limited | |
| Syndicate Member | Kotak Securities Limited |
| Isssue Opening Date | Wednesday 6th October |
| Isssue closing date | Friday 8th October |
| IPO Grade | 4/5 by ICRA Limited indicating above average fundamentals |
| Bidding Lot | 25 shares |
| Maximum Retail Bid in shares and amount | 375 shares at Rs 265 Rs 97,500 |
Business
Oberoi is a real estate development company operating in Mumbai, focused on premium developments. They believe that they have an established brand and reputation, and a track record of developing innovative projects through our emphasis on contemporary architecture, strong project execution and quality construction in the real estate industry. While the focus is on residential projects, it has a diversified portfolio of projects covering key segments of the real estate market, which target the upper end of the respective income or market segment. It develops residential, office space, retail, hospitality and social infrastructure projects in mixed-use and Single-segment developments. By integrating residential projects with office space, retail, hospitality or social infrastructure projects, it seeks to create -destination developments, which it believes enhances the desirability of its residential units.
We currently follow a sale model for our residential projects and a lease model for a portion of our office space and retail projects as we believe this provides us with stable cash flows. In our hospitality projects, we currently follow an operating agreement model, whereby the hotel is owned by us and operated by a hotel chain. As of June 30, 2010, we own 976,679 square feet of Saleable Area of our Completed office space and retail projects (including 58,898 square feet of Saleable Area which is occupied by us), which follow the lease model, and 381,820 square feet of Saleable Area of our Completed hospitality project, which follows the operating agreement model.
We currently have 13 Ongoing and 11 planned projects, which we expect to provide a total Saleable Area of approximately 20,254,814 square feet. The estimated Saleable Area of our Ongoing and Planned projects as of June 30, 2010 is summarised in the table below:
| Project type | Ongoing | Planned | Total | |||
| Area in sq ft | No of proj | Area | No | Area | No | |
| Residential | 5820830 | 45 | 6516171 | 4 | 12377001 | 9 |
| Office space | 3659990 | 5 | 373812 | 2 | 4033802 | 7 |
| Retail | 121095 | 1 | 279939 | 1 | 401034 | 2 |
| Hospitality | 215280 | 1 | 1289787 | 1 | 1505067 | 2 |
| Social infra | 305309 | 1 | 1672602 | 3 | 1977911 | 4 |
| TOTAL | 10122504 | 13 | 10132310 | 11 | 20254814 | 14 |
The company as promoter and promoter group have as of 30th June 2010 completed 33 projects covering 50,18,234 sq ft of saleable area spread across Mumbai.
On the leased space the company has one completed commercial space property from which leased rent is currently available and similarly one retail mall from which leased rent is available. The commercial space known as Commerz 1 has approximately 3,64,888 sq ft of area and includes a portion occupied by the company. 77.14% of the area has been leased as of 30th June 2010 against 73.71% as of March 2010. In the retail space known as Oberoi Mall, the area is 5,52,893 sq feet and 89.53% of the same is leased as of 31st March and 88.70% as of 30th June 2010. The consolidated revenue from lease for these two properties was Rs 83.35 crs for the year ended March 2010 and Rs 26.02 crs for the three month period ended June 2010. This ensures a healthy cash flow and also stability in the same.
Objects of the Issue
The net proceeds of the issue which is gross proceeds less issue expenses would be utilised as follows: -
| 1. | Construction of ongoing projects | Rs 741.00 crs |
| 2. | Acquisition of Land or land development rights | Rs 225.00 crs |
| 3. | General corporate purposes |
Financials
Oberoi Realty on a consolidated basis had a total income of Rs 454.89 crs for the year ended March 2009 and Rs 805.49 crs for the year ended March 2010. The first quarter of 2010-11 saw the revenue at Rs 165.83 crs. The net profit after tax for these respective periods has been Rs 252.14 crs, Rs 458.18 crs and Rs 79.79 crs for the fisrt quarter of 2010-11. The present or pre-IPO share capital is 28,86,71,262 equity shares or Rs 288.67 crs. Based on this equity the company had an EPS of Rs 8.73 for March 2009, Rs 15.87 for March 2010 and Rs 2.76 for the quarter ended June 2010-11.
Comparison
Oberoi has compared itself with DLF Limited, Unitech Limited and Indiabulls Real Estate Limited. On a PE basis all three are substantially expensive compared to Oberoi. I believe there are two points about Oberoi that people need to look at before comparing or investing. Any real estate company RHP is full of litigation, qualifications and host of group and subsidiary companies. The ownership structure and list of associate companies is huge. Land transactions are unclear and transfer prices confusing. In the case of Oberoi the RHP is a clean document, all major land parcels have been acquired through corporate deals, there are no major issues, all construction is in to be listed company and very importantly there is no debt on the books.
All these augur well for a company which has a very strong brand in the city, has all projects virtually in Mumbai except one in Pune. If one were to sum up Oberoi Realty limited one could highlight the same as follows: – Oberoi is an established premium brand positioning with strong presence across Mumbai, strong project pipeline providing near term cash flow visibility, Destination developments and ability to cross leverage across all segments, scalable business model with proven execution capabilities, stable and experienced management and a simple corporate structure and finally financial strength with ZERO LEVERAGE.
If one still needed an icing on the cake the remaining three quarters of the financial year 2010-11 would see a large portion of sales being monetised as the projects near completion. One such project is the Oberoi Splendour in Andheri East.
Valuations
The fully diluted equity of the company would be Rs 328.23 crs or 32.82 crs. The market capitalisation of the company post the IPO would be Rs 8,304 crs at the lower price band of Rs 253 and Rs 8,534 crs at the upper price band of Rs 260. Based on the net profit of Rs 458.18 crs for the year ended March 2010, the current offering is at a price earnings multiple of 18.12 times at the lower band and 18.62 times at the upper band. I believe this is an attractive issue and the company would offer substantial appreciation in the medium and long term for all investors.
Conclusion
Looking at the fundamentals, the business model and the strong performance, pedigree, brand and project pipeline, this appears an extremely attractive issue. The proceeds of the issue and the monetisation of future sales would provide the necessary kitty and resources to acquire future land banks: – a key to this business. Investors with a medium term investment horizon must subscribe.
SEBI Disclaimer: – I intend to subscribe to the above issue
