This document provides a valuation of Oberoi Realty, an Indian real estate development company. It uses two methods: discounted cash flow analysis and relative valuation using comparables. For DCF, it calculates WACC, estimates future cash flows growing 23.69% for 10 years then 8%, and discounts to get a per-share value of Rs. 280.60. Relative valuation using comparable companies yields a two-stage model value of Rs. 258.86. The conclusion is Oberoi Realty is undervalued compared to the intrinsic value estimates and recommends a strong buy with a Rs. 280 target price. Limitations include lack of some required data points and not accounting for macroeconomic or investor perception factors.

1. Valuation of Oberoi Realty

2. Table of Contents
1. About the Company.............................................................................................................. 3
2. Valuation of the Company .....................................................................................................4
3. Conclusion and Recommendation.......................................................................................... 7
4. Limitations............................................................................................................................ 8

3. 1. About the Company
Oberoi Realty was incorporated as Kingston Properties Private Limited on May 8, 1998
under the Companies Act, 1956 in Mumbai. The name of the company was changed to
Oberoi Realty Private Limited on October 23, 2009. The company was converted into a
public limited company on December 14, 2009 and consequently, the name was changed
to Oberoi Realty Limited.
The company is a real estate development company operating in Mumbai, focused on
premium developments. The company has established a strong brand and a successful
track record in the real estate industry by developing innovative projects through its
emphasis on contemporary architecture, strong project execution and quality construction.
While its 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.
The company uses a knowledge-based approach from internal and external sources in
making land acquisition, development and lease/sales decisions. It also utilizes an
outsourcing model that emphasizes quality design and construction. It works with several
reputed international architects and domestic architects and contractors. The company
believes that this outsourcing model provides us with the scalability required to undertake
large developments.
Oberoi Realty currently follows a sale model for its residential projects and a lease model
for a portion of its office space and retail projects as it believes this provides the company
with stable cash flows. In hospitality projects, it currently follows an operating agreement
model, whereby the hotel is owned by the company and operated by a hotel chain.
The company currently has eight ongoing and 19 planned projects, which it expects to
provide a total saleable area of approximately 21,316,528 square feet.

4. 2. Valuation of the Company
To value the company we basically use two methods:
 Discounted Cash Flow
 Relative Valuation using Comparables
Discounted Cash Flow Method
Discounted Cash Flow is a method which is widely used in finding out the value of the real
estate company. It involves calculating the following steps:
 Finding out the discounting rate which involves finding out the WACC.
 Finding out the growth rate of the company vis-a-vis industry.
 Finding out the future cash flows of the company
Finding the discount rate: To find the discount rate we need to calculate two things. We
need to calculate the WACC by finding the cost of equity and the cost of debt(after tax) and
using the formula:
Re= Cost of equity
Rd= Cost of debt
E= Equity
D= Debt
T= Marginal Tax rate
Since the company is a debt free company so we take the cost of debt(Rd) as 0. Now we need
to calculate the cost of equity.
The cost of equity is calculated using the CAPM model.
WACC= D/(D+E) * Rd * (1-T) + E/(D+E) * Re

5. Assumptions:
There are some assumptions which need to be taken. They are:
1) Risk free rate (Rf) = 9%
2) Market Premium (RPm) = 5.5%
The beta of the company was calculated by using the historic stock returns and the market
returns for a year and finding out the co variance of the company with the market. Using Ace
Equity we found out the beta of the firm to be 0.57.
Now this cost of equity becomes the WACC of the company by which acts as the discounting
factor for the company.
Finding out the growth rate of the company: To find the growth rate of the company we
took the value of the growth in the EBIT to be as the geometric mean of the growth rate of
the company. We took this to be the proxy for convenience reasons as the data for the growth
drivers mentioned were not available. We found out the growth rate in the high growth
period to be around 23.69%. We gave also taken the assumption that this high growth
lasts for around 10 years after which the growth stabilizes to 8% which has been taken
to be the expected growth of the economy after 10 years.
Finding the Future cash flows of the company:
The future cash flows are estimated to be growing at a rate of 23.69% for the next 10 years
and then tend to stabilize to 8% in the long term. Here is how we find the FCFF of the firm
and the final value of the firm:
Cost of Equity= 9+0.57*5.5=12.14%
Cost of Equity= Rf+ beta*RPm

6. All numbersincrore 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Terminal
PAT 504.79 624.3698 772.2830098 955.2368549 1181.532 1461.438 1807.652 2235.885 2765.566 3420.729 4231.099 4569.587
Depreciation 28.54 35.30162 43.66457472 54.00871247 66.80338 82.6291 102.2039 126.416 156.364 193.4066 239.2247 258.3626
Capital Expenditure 349.48 432.268 534.6722615 661.3361203 818.0066 1011.792 1251.486 1547.963 1914.676 2368.262 2929.303 3163.648
NetCapex 320.94 396.97 491.01 607.33 751.20 929.16 1149.28 1421.55 1758.31 2174.86 2690.08 2905.285
change in WC 78.5682375 97.18105 120.2032444 148.679393 183.9015 227.4678 281.3549 348.0079 430.451 532.4248 658.5563 711.2408
FCFF 130.22 161.07 199.23 246.43 304.81 377.01 466.33 576.80 713.45 882.46 953.06
23048.64
pv factor 0.891782 0.79527554 0.709212592 0.632463 0.564019 0.502983 0.448551 0.40001 0.356722 0.318118 0.318118
116.13 128.0966843 141.296463 155.8564 171.9167 189.6319 209.1727 230.7269 254.5023 280.7276 7332.184
Value of the firm 9210.241583
No of shares=328233262
Value per share= Rs. 280.60

7. Relative Valuation using Comparables Method
The list of the comparable firms is here as follows:
We can see the PE ratio of the company Oberoi Realty is greater than the industry PE which
means that the firm has been shown to be slightly over valued compared to the industry PE.
We also did the valuation of the company using the two stage model. Here are the results of
the same:
We calculate the value using the two stage formula of relative valuation we get the value to
be Rs. 258.86 which is almost comparable to the value which we calculate using the DCF
discounting method. Thus we can also see that the prices of the stocks are undervalued.
3. Conclusion and Recommendation
Based on the current market price of Oberoi Realty we see that the company is trading at Rs
171.75 which is well below our intrinsic value estimate of Rs. 280. The potential upside of
the stock is 50%. The recommendation is a strong buy and keeps with a target price of Rs.
280.
DESCRIPTION Mar-12
India Bulls 209.25
DFL 79.47
Godrej Property 33.68
DB Realty 32.8
Oberoi Realty 25.76
Industry P/E 16.11
Anant Raj Ltd. 14.46
Prestige Estate 14.06
Housing Dev & infra 13.33
Adjusted PE (x)
High Growth Stable growth
Payout 20.050% 20.050%
EPS 15.38
Two stage growth Model
High Growth Stable growth
Growth 23.69% 8%
ROE 18.94% 10.01%
Re 12.14%
44.46 214.4 258.86

8. 4. Limitations
The major limitations that we encountered were:
 The availability of concrete data because of which a lot of assumption had to be taken
like in the growth rate we had to take growth rate of EBIT to be the proxy because the
data required was either not available or not significant enough.
 We have not taken into account macro economic factors which may cause growth rate
to vary y-o-y.
 The investor’s perception and the preferences has not been taken into account which
may have a significant effect on the growth of the sector as a whole.