Analyst Corner: Revising Oberoi Realty rating to‘buy’; TP Rs 550

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Updated: October 25, 2018 3:16:46 AM

Oberoi Realty (OBER IN) revenue grew 95% Y-o-Y and was down 33% Q-o-Q to Rs 600 crore, below our estimates on lower revenue recognition from the Esquire project, Goregaon (Rs 110 crore in Q2 vs Rs 400 crore in Q1FY19).

Oberoi Realty,  Sky City, Borivali, Eternia & Engima projects, Commerz phase II projectRental income remains healthy at Rs 98.2 crore, up 25% Y-o-Y, led by Oberoi mall and improved occupancy in Commerz phase. (Representative image)

Elara Capital

Oberoi Realty (OBER IN) revenue grew 95% Y-o-Y and was down 33% Q-o-Q to Rs 600 crore, below our estimates on lower revenue recognition from the Esquire project, Goregaon (Rs 110 crore in Q2 vs Rs 400 crore in Q1FY19). Y-o-Y growth was bolstered by Sky City at Borivali and Eternia & Engima projects at Mulund. Operationally, it was a strong quarter, with pre-sales up 61% Y-o-Y and down 9% Q-o-Q to Rs 570 crore on strong sales at its Worli 360 West (five units sold) and Sky City (Rs 130 crore vs Rs 89.1 crore in Q1). Customer collection was at Rs 570 crore up 287% Y-o-Y, aided by the Esquire and Worli projects.

Rental income remains healthy at Rs 98.2 crore, up 25% Y-o-Y, led by Oberoi mall and improved occupancy in Commerz phase. Net cash was at Rs 330 crore, led by the equity issuance of Rs 1,200 crore (vs net debt of Rs 1,600 crore in FY18). The Commerz II phase I has achieved 90% occupancy (vs 64% in Q2), which will be reflected in H2FY19. In Q2, Eternia project crossed 25% construction threshold limit.

Oberoi expects liquidation of its Esquire project over the next 18 months. The company has guided for an annual rental income of INR 12bn post commercialization of Borivali and Worli malls along with Commerz phase II project. Oberoi has guided for Thane and subsequent phases at Borivali & Goregaon to be launched in CY19. The liquidity stress in the NBFC sector is likely to benefit developers like Oberoi with a good execution track record.

Oberoi scores high on operational transparency and disclosures — key differentiators in the sector. Post the recent correction in the stock price, we revise our rating to ‘buy’ from ‘accumulate’ with a TP of Rs 550 based on 1x one year forward NAV.

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