New sales in Oberoi Realty’s (Oberoi) ongoing projects picked up sharply during Q2FY18, driven by clarity over RERA and GST benefits passed on to buyers through lower pricing. We expect new projects/phase launches to boost new sales further in ensuing quarters. Incremental leasing in Commerz II – Ph1 should help grow annuity income. The company continues to look for value-accretive land buying opportunity and is ready to leverage its balance sheet for it. Maintain ‘BUY‘. Oberoi reported revenue of Rs 3 billion, up 20% y-o-y, 16% q-o-q, driven by POCM-based revenue recognition in Esquire Rs 1.75 billion, Exquisite Rs 128 million, Prisma Rs 171 million and income from annuity assets, Rs 798 million — up 14% y-o-y. Favourable product mix led to EBITDA margin expansion, 4% y-o-y and 2% q-o-q to 54%. Consequently, net profit spurted 25% y-o-y to Rs 1.05 billion, up 15% q-o-q versus our estimate of Rs 979 million. The beat was led by higher new sales in Esquire — sold 18 units versus past 6Q average of 7 units.
For Q2FY18, total new sales stood at 84 units, up 100% q-o-q and 25% y-o-y, worth Rs 3.5 billion, up 23% q-o-q, down 30% y-o-y — sales of 8 units worth Rs 3 billion in Worli project in Q2FY17. With uncertainty related to GST and RERA subsiding and Oberoi passing GST benefits to end-users through lower pricing, sales during Q2FY18 picked up sharply across most of its ongoing projects: Esquire, Mulund and Borivali, new sales stood at 18, 19 and 39 units, respectively, versus past 6Q average of 7, 8 and 28 units. Oberoi expects to complete the Esquire project by CY17 end and may look to launch Exquisite Ph3 towards FY18-end. The company expects to restrict Tower A in 360 Degree West project to 65 floors and open for sale higher floor inventory, which should help improve sales momentum going ahead. Lease pipeline for Commerz II – Ph1 appears healthy and Oberoi expects to lease 75% (currently 45%) of its area by FY18 end. New launches, incremental leasing in Commerz II – Ph1, clarity on Thane project plans and new land acquisition are key stock catalysts.