Management Discussion Analysis
The Management of Orbit Corporation Limited is pleased to present Management Discussionand Analysis for the year ended 31st March 2013
Year 2012-13 experienced easing of global financial market strains and improvement inmarket conditions as a result of unconventional monetary policy easing and supportivepolicy actions along with prospective benefits from inflow of funds through monetaryeasing in Japan. However, same was also countered with global scepticism created onaccount of fear of damage due to sequester and furlough measures and drastic change ofevents in Cyprus.
With 4.5% Indias growth during third quarter of the year, coupled with policylevel indecisiveness and controlled monetary policy regime, the advance estimates of theCentral Statistics Office (CSO) pegged the year 2012-13 growth in Gross Domestic Product(GDP) at factor cost at constant (2004-05 prices) at 5.0%. The growth in per capita NetNational Income (NNI) at current price also decelerated to 11.7% for the year 2012-13 ascompared to 13.7% during previous year.
Source: Reserve Bank of India
The year saw level of inflation, measured in terms of change in Wholesale Price Index(WPI), and its movement across major commodity groups varying significantly. In March2013, it subdued to 5.96%, its lowest figure since November 2011. Year also recordedsubstantial reduction in average inflation, which was registered at 7.8% for 2012-13 ascompared to 8.9% for 2011-12. However, similar reduction was not registered in change inConsumer Price Index (CPI), which hovered around 10% for the year, and stood at 10.39% inMarch 2013 against previous closure of 9.38%. Similarly, HSBC / Markits servicesector sentiment index, measured through PMI (Purchasing Managers Index) movement,reduced to 51.4 in March 2013, indicating only a slight expansion in the Indian servicesector, its weakest since November 2011.
Reserve Bank of India (RBI) as the Central Bank had to walk a tight rope during theyear, as the recent deterioration in the current account position warranted rates to beleft high to cool the economy, at the same time softer inflation numbers, during lastquarter of the period, provided a window for ease in monetary policy stance to support thefaltering growth outlook. During the year 2012-13, RBI juggled with various monetarypolicy instruments to maintain checks and balances considering the price stability andeconomic growth at its core.
Real Estate Scenario
During the year, Real Estate industry got impacted in a major way from both, demand aswell as supply side factors. On demand side, income levels of people took a beating onaccount of continuous high degree of inflation, eating away on the savings and investmentpotential. On the other hand, non-availability of finance at reasonable rate, lack ofquality infrastructure, and uncertainty in legal and regulatory framework continued toplague the much needed supply side impetus for overall maturity of the industry.
The availability and growth of industry wide finance, in form of housing loans ondemand side and construction loans on supply side, continued to be hampered with problemsand impediments arising from changes in the economic cycle, uncertainties surrounding landacquisition and development policies, and systemic risk on account of lax due diligencestandards. This has also restricted the credit potential of this market when compared toother developed economies.
Bank credit to the housing sector (including Construction Industry, Commercial RealEstate Services and Personal Housing Loan) as on March 2013 grew by 13% year on yearbasis, however its overall share of Non-Food Credit continued to gradually decline. Theallowance of raising low cost funds through External Commercial Borrowing (ECB) routeunder an annual ceiling of USD 1 Bn for the period of two years for affordable housingsector was the only consolation that the sector received during the year.
On the regulatory front, with a noble cause of improving transparency in the sector andtracking real estate transactions, budget 2013 provided for introduction of 1%
TDS (Tax deducted at source) on transfer of immovable property above certain thresholdlimits. However, the same has also resulted in a sense of trepidation for the buyers dueto lack of clarity on provisions and apprehension with respect to implementation.
Moreover, on the service tax front, the abatement has been reduced to 70% from 75% forflats with carpet area of 2,000 square feet or more, or value of Rs 10 Mn or more. Thiswould result in an increase of 20% in the service tax outflow for luxury housing.
Further, the Real Estate Regulation Bill, which is expected to be tabled in wintersession of Parliament in 2013, is likely to improve the level of transparency andstandardize industry level practices. However, the litmus test of its success would be inthe level of synchronization that it would be able to achieve with State level regulatoryrequirements.
We are a real estate development company in Mumbai Metropolitan Region (MMR), withsignificant operations in the Island City of Mumbai. We aim to be providers of premiumrealty solutions in Mumbai by leveraging the strength of our brand, our project executionskills and maintaining our competitive advantage through location and internationalquality of our projects.
Our customers include High Net Worth individuals (HNIs) and eminent personalities fromcorporate houses. Our business model is primarily driven by redevelopment of cessed anddilapidated buildings in Island City of Mumbai. We believe that the demand in areas of ouroperation is inelastic to price, but at the same time responsive to innovative and premiumhousing solutions thereby helping us differentiate our product offerings.
Our project portfolio consists of luxury residential apartments being developed inSouth Mumbai, South Central Mumbai and Sub-urban areas.
| ||Completed ||On Going ||Visible Launches |
|Project Category ||Appx. 0.7 mn sft ||Appx. 0.8 mn sft ||Appx. 5 mn sft |
|Ultra ||Villa Orb (NSR) ||Orbit Haven (NSR) || |
| ||Orbit Arya (NSR) ||Villa Orb Annex (NcSR) ||Orbit Magnum (NSR) |
|Super ||Shivam (BN) Orbit Heights (NC) ||Orbit Enclave (PS) Orbit Laburnum (GD) ||Orbit Bloom (KC) |
| || ||Orbit Terraces (LP) ||Orbit Midtown (LB) |
| || ||Orbit Grand (LP) ||Orbit Grandeur (SC) |
|Premium ||Orbit Eternia (LP) ||Orbit Residency Park (AD) || |
|Custom Built ||Orbit WTC (BKC) || || |
|Commercial ||Orbit Plaza (BKC) || || |
|Luxury Gated Township || || ||Orbit Mandwah (AB) |
NSR Napeansea Road,
NC Nana Chowk,
LP Lower Parel,
BKC Bandra Kurla Complex,
PS Prathna Samaj,
KC Kemps Corner,
Ultra Luxury Projects
The Ultra luxury projects located at coveted areas of South Mumbai like Napeansea Road,Malabar Hill provides its residences with unmatched values of Quality, Luxury andNeighbourhood.
In addition to delivery of two award winning Ultra Luxury projects, namely Villa Orband Orbit Arya, we have two on-going projects, namely Orbit Haven and Villa Orb Annex indifferent stages of execution under this category.
Super Luxury Projects
The Super luxury projects located in the premium locations of South Mumbai like KempsCorner, Nana Chowk, Gamdevi, Prathna Samaj, Babulnath provides its residences with modernfeatures in true South Mumbai locations.
In addition to delivery of two Super Luxury projects, namely Shivam and Orbit Heights,we have two on-going projects, namely Orbit Enclave and Orbit Laburnum in different stagesof execution under this category.
Premium Luxury Projects
The Premium luxury projects located at Business Districts of Mumbai like Lower Parel,Andheri provides its residences with a good mix of modern lifestyle and convenience.
In addition to delivery of one Premium Luxury project, namely Orbit Eternia, we havethree on-going projects, namely Orbit Terraces, Orbit Grand and Orbit Residency Park(being executed by our subsidiary Ahinsa Buildtech Pvt. Ltd.) in different stages ofexecution under this category.
Custom Built Commercial Projects
Considering specific client requirements, we have executed two commercial properties,Orbit Plaza and Orbit WTC, as built-to-suit office spaces in the vicinity of Bandra KurlaComplex.
Luxury Gated Township
We are planning to develop a luxury gated township with high-end amenities and featuresat Mandwa, Alibaug. The project named Orbit Mandwah, is being executed by our subsidiaryOrbit Highcity Pvt. Ltd. The project is an extension of our premium offerings providingluxurious villas to our high-end customers at just 16 minutes away (by sea route) from theGateway of India.
We continue to have strong future pipeline of projects in all the above projectcategories and continue evaluating various proposals for redevelopments and identifyopportunities for value creation for our shareholders while delivering exquisiteresidential solutions to our customers.
Key Business Highlights
Key Profit & Loss Indicators
Rewards and Recognition
During the year, Orbit Corporation Ltd. added another feather in its cap by making itsmark at the Estate Summit and Awards 2012 wherein we were bestowed with "Best Luxury/ Premium Housing Developer of the Year - West India" Award.
Further, our Annual Report for the year 2012 was appreciated by Public RelationsCouncil of India at 7th Global Communication Conclave.
Sales and Outstanding Book
Overall sales, both in volume as well as value terms, for FY13 registered a positivegrowth of 27% and 10% respectively. Sales for FY13 stood at 103,484 sft with overall salesvalue of Rs 1,670 Mn.
No new Projects were launched during the year on account of mixed market indicators.Sale from Prime South Mumbai areas like Napeansea Road stayed muted and was primarilydriven by projects at Lower Parel and Andheri - Sakinaka.
As on 31st March 2013, order book stood at Rs 5,353 Mn. Future sales fromongoing projects like Orbit Enclave, Orbit Terraces, Orbit Residency Park, Orbit Grand,Orbit Laburnum, Orbit Haven and Villa Orb Annex are expected to keep the order bookhealthy. Orbit Bloom, Orbit Midtown and Orbit Mandwah are expected to be significantcontributors to the order book over the medium term.
Income and Debtors
The Operating Income of Rs 2,990 Mn for the year was lower by 22% over the previousyear. This reduction is primarily attributable to slower pace of execution at most of theongoing projects on account of delays in getting adequate permissions.
Overall debtors of Rs 6,807 Mn were outstanding as on 31st March 2013. Theamount is current in nature and is expected to be realized over the coming year onachieving the recovery triggers based on respective agreements.
Expenditure and Inventory
The austerity measures that were initiated last year continued during the current yearas well. Operating, General and Admin Expenses (including Depreciation & Amortisation)as percentage of total income further came down to 34% as compared to 44% for the previousyear. This reduction was also on account of lower level of operational activity and lowerinvestment in new projects during the year.
Finance Cost continued to be at alarmingly high level as compared to the operatingperformance and was the single largest contributor for cost during the year. It went up byalmost 30% to Rs 1,545 Mn during the year as against Rs 1,193 Mn for the previous year.
Inventory of the amount spent on ongoing projects remained at moderate levels and stoodat Rs 7,205 Mn as on 31st March 2013.
As on 31st March 2013, total debt on the Company amounted to Rs 10,341 Mnwhich included Non-Convertible Debentures of Rs 2,900 Mn and Compulsorily ConvertibleDebentures of Rs 900 Mn. Out of the same, Rs 7,453 Mn is secured by way of charge onproperties, future receivables, Promoters Shares and Guarantees.
Debt to Equity ratio stands at 0.89x (excluding CCDs worth Rs 900 Mn) as on 31st March2013.
We, at Orbit Corporation Ltd. aim at making it a better place to work by providing anatmosphere of trusteeship, competition and challenge, thereby providing opportunities forpersonal and professional growth, through training and ample career enhancementopportunities. We believe in harnessing and honing the individual core competenciesthereby aligning them to our business goals.
Along with work, we also ensure the work life balance by taking various initiatives inrecognizing and celebrating various festivals and events bringing out the human side tothe strong professional culture.
We strongly practice the policy of empowering and nurturing the best of the talents.With this philosophy and aim in mind, we continuously invest in carrying out traininginitiatives covering different aspects of not only professional but also personal life.
|Training Type ||Man Hours ||Cost (Rs) |
|Behavioural / Soft Skill ||380 ||11,900 |
|Fitness & Well Being ||369 ||- |
|Seminar ||96 ||71,987 |
|Technical / Domain ||472 ||148,314 |
|Total ||1,317 ||232,201 |
Our business strategy has withstood the financial crisis and we continue to believethat our strategy remains relevant and potent for the growth of the Company. The keycomponents of our strategy are as follows:
Strategically conceived and positioned projects
Unlike the conventional land-bank approach and fitting a development story around it,we follow a strategy of identifying visible demand-supply gaps and a relevant customersegment. We then conceive our product around the segments requirements and identifyan appropriate land-bank that meets all demands of the conceived product.
Focus on Financial Strength and Liquidity
We strive to ensure a healthy balance of funding options to ensure optimum leverage ofour balance sheet and remain solvent to meet our debt obligations as well as provide valueto our investors. Our sound business approach and vision for the company has been thedriving force behind the support we have received from lenders as well as equityinvestors.
Building Customer Loyalty and hence a strong Brand Image
With our strategic approach, we have been successful in understanding the psyche of ourtarget customer classes and have accordingly developed products at appropriate locationswith right demand attributes. We have been able to fulfil all real estate needs of ourcustomers and thereby have widened our scale.
Risks & Concerns
Missing out on Mass housing & mid-size housing opportunity
With the economy back on track, mass housing or the mid-size housing requirement isexpected to witness good growth over the coming years. The growth in these segments isattributed mainly to lower interest rate on housing loans, increase in disposable incomewith salaried class, increase in urban middle class population, shift in preference fromrented house to owned house, tax incentives, etc.
Most of our projects are targeted at high end or up market buyers and this segment maynot witness growth in revenues and profits in line with mass housing market. Further,since we have a focus on select group of buyers, we would lose out on the opportunitypresented by the mass housing or the mid-size housing market.
Our business requires, among others, getting consent from at least 70% of the tenants,consensus between various groups of tenants, providing accommodation to the tenants duringthe interim period of demolition and construction, obtaining consents and rehabilitation.
Delay in any of the aforesaid activities consequently can have adverse financialimplications. Any delay in the construction or prolonged construction period will lead toincreased cost and the same will affect our profitability.
The entry of new and established players with local and national presence can affectour acquisition of potential targets in the existing and new markets.
With growing number of projects under execution and the nature of collection agreementswith clients that are of discreet nature, the outstanding amount gives an illusion of highreceivables in the form of Debtors.
Our strategy of being focused in Mumbai exposes us to concentration risks andsignificant exposure in case of any adverse changes in demand in the Mumbai region,adverse changes in local development control regulations or local political situation,adverse weather conditions, etc.
Regulatory & Policy Changes
Changes in the policies of Government of India, Government of Maharashtra, MunicipalCorporations and MMRDA related to environment, FSI and implementation of infrastructureprojects and other matters can adversely impact the real estate scenario and hence ourbusiness and prospects.
Sudden deterioration in the creditworthiness of our clients / debtors can adverselyaffect our collections and impact financial performance. Our profitability may be impairedif credit terms with our vendors change adversely.
Depending on the type of risk, the Company is combating each risk by various means likestrategic tie-ups in construction, qualitative market research, quicker decision makingand strategizing the sales and prices with timelines.
Moreover, the Company has furthered strengthened its processes related to legal duediligence so as to reduce the risks of getting into projects with longer gestation periodmainly due to legal intricacies.
Forward looking statements
certain statements in the management discussions and analysis describing theCompanys objectives, projections, estimates, expectations or predictions may beforward looking statements within the meaning of applicable Securities laws andregulations. Actual results could defer from those expressed or implied as thesestatements may be based on certain assumptions of future events over which the Companyexercises no control
such risk and uncertainties include but are not limited to our ability to managegrowth, competition, attracting and retaining skilled professionals, time and costoverruns, regulatory approvals, market risks, domestic and international economicconditions, changes in laws governing the Company including the tax regimes and exchangecontrol regulations
important operations include material availability and prices cyclical demandsand pricing in the Companys principal markets, change in Government regulations, taxregime, economic developments within India and other incidental factors
Revenues and expenses are difficult to predict and can vary significantly fromperiod to period, which could cause share prices to decline
our projects are subject to risks from natural disasters earth quakes like andfloods
When used in this report, the words 'anticipate', 'believe', 'estimate','expect', 'intend', 'will' and other similar expressions as they relate to the Companyand/or its businesses are intended to identify such forward looking statements
The Company undertakes no obligation to publicly update or revise any forwardlooking statements, whether as a result of new information, future events or otherwise