Domestic share market continued to swing between gains and losses on Wednesday as benchmark Nifty 50 tested 17,550 levels, whereas the S&P BSE Sensex was flat at 59,015 levels. Broader markets, meanwhile, outperformed frontline indices as Nifty Smallcap 100 and Nifty Midcap 100 gained up to 0.7%. Sectorally, Nifty Media and Nifty Realty held the fort as they gained over 1%. Nifty Auto, Nifty IT, and Nifty Pharma, however, were bogged down in trade. Amid the persistent volatility, stock specific approach may help investors accumulate quality stocks, and pocket returns. Analysts at Motilal Oswal believe Oberoi Realty may be a good stock pick from the real estate sector. The stock has rallied 7% so far this year, outperforming Nifty Realty index which has tumbled 8% YTD.
Investment rationale
360-West – Improved traction amid limited luxury RTMI supply
Analysts at Motilal Oswal recently visited Oberoi Realty’s 360-West, Worli project to understand the unit offerings as well as the sales and pricing strategy post-receipt of its Occupancy Certificate (OC) in June. According to the report, about 200 units are on offer of which 69 have been sold as of 30 June 2022. The total pending inventories were 129 units. The realty firm had strategically put a pause on new sales in the project as it filed for fresh approvals under the new Development Control and Promotion Regulation (DCPR) – 2034 plan. Post the approvals, it received the OC in June and will now restart the sales in the project. Considering the latent demand and limited ready to move-in supply of luxury product in the market, the company is hopeful of improved traction for the project, according to the report.
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Pricing likely to pick-up given limited RTMI luxury supply
While Motilal Oswal has built-in a pick-up in sales velocity in near term due to the pent-up demand, sustenance of high sales velocity is expected to lead to faster-than-expected cash flows and meaningful re-rating potential for the stock. The brokerage believes that pricing is likely to pick-up given limited RTMI luxury supply. Considering limited RTMI supply of luxury projects in the vicinity, the pricing for 360-West is also likely to pick-up to Rs 100,000-120,000/sqft as indicated by the management, resulting in a revenue potential of Rs 7,500 crore for the balance inventory in Tower B.
FY23 pre-sales estimates at Rs 4,800 crore
While the company has set ambitious sales targets for 360-West, analysts for now retain their FY23 pre-sales estimates at Rs 4,800 crore with contribution of Rs 750 crore coming from 360-West. “We will closely monitor the pick-up in sales and pricing trajectory for the project from hereon and revise our estimates accordingly,” the said. Apart from sustenance of high sales velocity in 360-West, the brokerage firm sees multiple rerating triggers in Oberoi Realty including: the launch of Thane project and customer response to the same, new project additions in its core markets of Mumbai MMR, and entry into newer markets of NCR as reported by media.
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Oberoi Realty: Buy
Target price: Rs 1,100 | Upside: 16%
Motilal Oswal analysts believe that healthy cash generation will provide a lot of comfort to Oberoi in seeking aggressive business development opportunities that will provide further growth visibility. “We maintain our BUY rating on OBER with an SOTP-based TP of Rs 1,100 (unchanged), indicating 16% upside potential,” they said. Oberoi Realty share were quoting at Rs 958 apiece, up 0.7% on NSE today.
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