Orbit Corporation – Q4 2010 Results Update

Orbit Corporation (Orbit) has posted a strong consolidated earnings in Q4FY2010, which is largely in line with our estimates. The net profit stood at Rs20 crore in Q4FY210 as compared to Rs1.6 crore in Q4FY2009. However, the revenues grew by only 8.7% year on year (yoy) to Rs86.5 crore, which was below our estimates. The shortfall in the top line growth was offset by a higher than expected operating profit margin (OPM) and a continued write-back in tax due to minimum alternate tax (MAT) credit entitlement.
The company sales volume came in at 125,339 square feet in Q4FY2010, which is almost 7.6x of 16,521 square feet in Q4FY2009. In fact, the fresh sales worth Rs327.1 crore was much higher than the recognised revenues of Rs86.5 crore during the quarter. This has resulted in the balance revenues available for recognition to increase to Rs702.1 crore and this provides better visibility for revenue recognition (booking) in the coming quarters.
The OPM expanded substantially, to 47.6% in the quarter (Q4FY2010), as compared to 28.1% in the same quarter of the last year (Q4FY2009) and 28.4% in the previous quarter (Q3FY2010) mainly on account of a decrease in the raw material and construction cost as percent of sales.
For the full year FY2010, the net sales and the profit grew by 92.9% yoy and 164.5% yoy respectively. The company?s board has recommended a final dividend of 15% thereby taking the full year dividend to 25%. It has also announced a bonus issue of shares in the ratio of 1:1 subject to approval of shareholders.
During the quarter the company soft launched a new project, Villa Orb Annex, on Napean Sea Road with a total saleable area of 45,000 square feet. The company received a very good response as 100% of the saleable area got sold during Q4FY2010 itself at an average rate of Rs45,333 per square foot.
We are downgrading our top line estimates marginally for FY2011 and FY2012, as we do not expect its two projects to reach revenue recognition threshold level as expected earlier. On the other hand, the company is expected to continue enjoying a lower tax rate (on the back of 80IB tax benefit on its redevelopment projects) over the next two years also (against the expectation of full tax rate). Hence we are revising our earnings estimates for FY2011 and FY2012 and the revised earnings per share (EPS) for FY2011 and FY2012 works out to Rs18.5 and Rs29.4 respectively.
We are positive on Orbit given the fact the company operates in the key property market?Mumbai?and caters to the luxury segment. Further, it has a strong project pipeline and a strong order book, which provides a strong revenue visibility for the quarters ahead. At the current market price, the stock trades at 16.2x and 10.2x its FY2011 and FY2012 earning estimates respectively. We are revising our price target to Rs430 as we (i) roll forward our NAV to FY2012E, (ii) incorporate a new project announced by the company on the Napean Sea Road having a saleable area of 5.5 lakh square feet, and (iii) building in 10% hike in realisation on the Napean Sea Road projects.

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