Oberoi Realty has won the bid to acquire GSK Pharma’s 60-acre land parcel in Thane for Rs 5.55 billion. We believe the acquisition is value accretive for Oberoi with estimated development potential of 9.2msf and NAV addition of Rs 53/share. Its b/s allows further NAV growth through new land acquisition using leverage. We revise our FY18 NAV estimate to Rs 552/share driven by Thane land contribution and lowering of discount rate. We apply lower NAV discount (5% v/s 10% earlier), in view of compression in sector discount, to arrive at our revised TP of Rs 524. Maintain ‘Buy’.
Board of GSK Pharma has approved sale of its land measuring 60 acres to Oberoi Realty for consideration of Rs 5.55 billion. The land is located on Pokhran Road in Thane – prominent suburb bordering north-east of Greater Mumbai and forms part of the wider Mumbai Metropolitan Region. Thane residential market has seen significant growth over last decade in view of poor affordability in Greater Mumbai and proximity to IT office corridor of Navi Mumbai. Given the land is currently under industrial use, Oberoi will need to spend towards approval for conversion to non-industrial use. The deal is subject to necessary approvals.Oberoi is yet to finalise development plans for the Thane land. Based on our interaction with Oberoi management, assuming full residential development, we estimate potential saleable area of 9.2 msf of which 20-25% could be affordable housing to avail 100% tax exemption under section 80IB.
Assuming Rs 4 billion towards conversion/approval charges, starting ASP of Rs 11 kpsf, project cost of Rs 4.5 kpsf, 5% y-o-y price/cost inflation and 12 years of development period, we estimate project NAV of Rs 18 billion. We expect Oberoi to fund the purchase using debt. Oberoi’s low gearing provides room to leverage its b/s and allows it to capitalise on attractive land purchase opportunities and grow its NAV. Plans for Thane land, new launches in Goregaon and sales pick-up in ongoing projects are key stock catalyst. We revise our FY18 NAV estimate to `552/share to incorporate Thane land value and lower discount rate and apply 5% discount to it to arrive at our revised TP of Rs 524.