JPMorgan

We maintain our neutral rating on Oberoi Realty with a 12-month price target of R270. Our target price is based on 10x EV/cash Ebitda (a 25% premium to the sector average, given Oberoi?s strong brand name and healthy balance sheet). New launches have been delayed and pose a downside risk to forward estimates.

Oberoi?s fourth quarter conference call did nothing to excite us about future sales growth. After the company missed the start-of-the-year consensus estimates for FY13, we think there is a risk of disappointment in FY14 on both Ebitda and EPS.

A pricing-over-volume strategy has worked well over the last two years in the context of near-completion inventory that it has carried in Splendor. Andheri projects, which have contributed almost 28-29% of pre-sales over the last two years, are rolling down with no significant offset in place.

Approvals for the Mulund project are still awaited, while Worli may not prove to be a big driver, even after launch as we expect slow sales given high-ticket sizes (over $8 million per unit) and Oberoi?s minority share in terms of economics. Consensus appears optimistic to us on earnings, as it did at the start of FY13.

Oberoi?s suburban inventory, with unit prices of over $0.6 million, is not immune to the sharp slowdown we have seen in most of the macro variables and hiring in the financial sector, in our view, despite its great positioning in the market.

While we believe the company can comfortably hold its prices given its balance sheet position, we see this stance coming at the expense of overall sales (value) growth.

Plentiful challenges remain in the near term, with key ones being unleased supply in completed and near-completion office buildings and maintaining sales value levels in the current environment.

While we agree with the company?s philosophy on land purchases, we also think that market discounts will soon start competing with Oberoi?s premium-priced projects, given improvement in project approvals and the current macro, as is

already being seen in lower prices and better financing offers from even Tier-I developers.