Stock corner: Maintain ‘hold’ on Oberoi Realty; target price Rs 582

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Published: October 24, 2019 2:19:21 AM

Thane and Goregaon Phase 3 projects’ launch has been pushed to Q4FY20 and Q1FY21, respectively (earlier expected in Q3FY20); we believe, sales traction in these projects will be key stock drive

We incorporate the revised launch timelines in our estimates and hence revise NAV-based TP to Rs 582 (Rs 590 earlier). Maintain ‘hold’.

Oberoi Realty’s (OBER) Q2FY20 new sales fell 43% y-o-y and 20% q-o-q to Rs 320 crore with decline in bookings across most projects. For the quarter: Top line came in at Rs 490 crore (down 17% y-o-y, 19% q-o-q); and rental revenue rose 14% y-o-y. According to the management, weak economic sentiments impacted sales and it expects bookings to rebound soon.

Thane and Goregaon Phase 3 projects’ launch has been pushed to Q4FY20 and Q1FY21, respectively (earlier expected in Q3FY20); we believe, sales traction in these projects will be key stock driver. We incorporate the revised launch timelines in our estimates and hence revise NAV-based TP to Rs 582 (Rs 590 earlier). Maintain ‘hold’.

OBER’s sales during the quarter were led by Rs 150 crore worth of bookings in the Worli project (down 33% y-o-y) and Rs 72.5 crore sales in the Borivali project (down 44% y-o-y, 61% q-o-q). Mulund and Goregaon projects logged sales of ~Rs 40 crore each, down 13% and ~72% y-o-y, respectively. Management indicated that weak sentiments amidst economic slowdown dampened sales during the quarter. The company launched the Maxima project in October, but has deferred the launch of Thane and Goregaon Phase 3 projects.
The rental revenue of `120 crore was up 14% y-o-y and flat q-o-q. This was primarily driven by Commerz II Phase I (up 63% y-o-y) with occupancy in the project surging to 97% from 63% in Q2FY19. Management expects Borivali mall to be completed next year and Worli mall in 2021.

As highlighted in our comprehensive sector report Real Estate — The Charge of the Consolidating Brigade, luxury residential sales have been battling headwinds. While OBER’s rising exposure to annuity assets is a positive, we believe pick up in sales is imperative for stock performance. We continue to follow the old accounting standards and build in revised launch time lines for the Thane and Goregaon Phase 3 projects. We maintain ‘hold/SU’ with a revised TP of Rs 582 (5% discount to our NAV of Rs 612/share).

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