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Oberoi Realty Ltd>
  • CMP : 1,800.8 Chg : 12.65 (0.71%)
  • Target : 1,000.0 (9.17%)
  • Target Period : 12-18 Month

21 Mar 2022

Elysian new tower launch drives strong presales...

About The Stock

Oberoi Realty (ORL) is a Mumbai-focused premium real estate developer with presence in the residential, commercial and hospitality segments.

  •  Residential portfolio of ~15.7 mn sq ft of ongoing projects and further launches in H2FY22 provide strong growth and cash flow visibility over medium term with superior product quality, timely delivery record and strong balance sheet
Q3FY22 Results

ORL reported a strong operating performance.

  • The company sold ~1.04 msf, up 104% YoY, with sales value of ₹ 1965 crore, up 102% YoY driven by newly launched Elysian Tower B in Goregaon in the last week of October 2021
  • On the financial front, reported revenues were muted YoY at ₹ 832 crore with residential segment revenue recognition, which was at ₹ 709.1 crore, up ~0.8% YoY. PAT was at ₹ 467.5 crore, (up 63% YoY), with beat due to recognition of Worli projects (under profit from associates)
What should Investors do?

ORL’s share price has grown at ~22% CAGR over the past five years.

  • We maintain HOLD rating on the company. Further value accretion will be seen once new foray into non MMR and society redevelopment projects are seen
Target Price Valuation

We value ORL at ₹ 1000/share.

Key Triggers for future price performance
  • Uniquely positioned in MMR’s premium residential segment; eyeing opportunities beyond MMR region over medium term
  • Moving towards a balanced mix of retail, commercial and hospitality assets - provides stability to slow-moving and volatile revenue streams
  • Recovery in malls, hotels and office assets post Covid
  • Strong cash flow visibility from ongoing and planned projects
New Stock Ideas

Besides ORL, we like Phoenix Mills in the real estate space.

  • Leading retail developer with strong expansion ahead
  • BUY with a target price of ₹ 1200

Key Financial Summary

Particulars FY19 FY20 FY21 5 Year CAGR(FY16-FY21) FY22E FY23E FY24E 3 Year CAGR (FY21-FY24E)
Net Sales 2,582.5 2,237.6 2,052.6 8.0 2,573.5 2,764.3 4,948.1 34.1
EBITDA 1,155.4 1,048.0 1,000.4 8.4 1,190.1 1,184.7 2,123.3 28.5
EBITDA Margin (%) 44.7 46.8 48.7 - 46.2 42.9 42.9 -
Net Profit 816.9 689.3 739.3 11.7 1,020.1 1,063.6 1,512.8 27.0
EPS (|) 22.5 19.0 20.3 - 28.1 29.3 41.6 -
P/E (x) 40.8 48.3 45.0 - 32.6 31.3 22.0 -
EV/EBITDA (x) 27.3 30.4 33.0 - 27.3 27.6 15.0 -
RoE (%) 10.1 7.9 7.9 - 8.0 6.8 11.6 -
RoCE (%) 12.4 10.8 9.1 - 9.8 8.7 14.3 -
- - - - - - - - -
Source: Company, ICICI Direct Research

Sales Volumes Trend and estimates (msf)


Key business highlight and outlook

Strong sales volume; new launches key for volumes ahead

OLR sold ~1.04 msf, up 104% YoY, with sales value of | 1965 crore, up 102% YoY driven by newly launched Elysian Tower B in Goregaon in the last week of October 2021 (details of project wise bookings on page 5). Also, the company is expecting to launch a new project in Thane in Q4FY22 or Q1FY23 (we bake in Q1FY23), with delay being due to change in design. Additionally, the management is contemplating launching subsequent phase of Borivali/Goregaon in FY23. On a healthy base of 1.7 msf sales volume in FY21, we bake in 1.8 msf, 2.2 msf, 2.5 msf volumes in FY22E, FY23E, and FY24E respectively, with Borivali/Thane/Goregaon volumes traction driving the same along with pick up in Worli.

Hospitality recovers fast, commercial stable

Performance of Westin improved drastically during Q3FY22 (revenue up 121% YoY to | 24.9 crore) with occupancy level at 72.2% and increase in average room rates (to | 6,918 in Q3FY22 vs. | 5,669 in Q3FY21). For Commerz-II, the occupancy level remains stable of 97.4% while rental rate declined to | 142/sq ft per month (vs.
| 148/sq ft per month in Q3FY21). Stable occupancy and decline in rental rate in Commerz-II translated into 3.8% YoY fall in revenue (to | 32.5 crore). Going forward, the management expects rental rates and occupancy, both, to inch upward with easy accessibility to under-construction near-by metro station. Commerz-I revenues improved 16.3% YoY to | 7.1 crore with increase in occupancy level to 53.5%. The management expects the occupancy in Commerz-I to improve in the medium term with uptick in demand for office space arising during normalized period. Commerz-III, having ~2.4 mn sq ft area, is under construction and already ~50% got leased. For Oberoi Mall, the company has booked revenue of | 24.7 crore during Q3FY22 (vs | 49.9 crore reported in Q3FY21). We highlight that base quarter had cumulative revenues recorded for previous quarters during wave 1.

Key conference call takeaways

  • The management seems optimistic on strong demand in upcoming projects with overall pick-up in real estate demand, volume recovery, favourable term with the suppliers, site consolidation coupled with its strong brand value. Parallel to its focus on the MMR region, the company is also actively looking forward towards non-MMR region and society redevelopment projects
  • ORL is considering the large land buying opportunities available in the MMR region. The management believes the company’s internal cash flows would be sufficient for new and growth capex while its debt levels are unlikely to increase significantly over the near-to-medium term
  • ORL has applied for occupation certificate of Three Sixty West project with completion of construction activities and expects elevated level of sales from the project in the near-to-medium term. The company’s share in net revenue ranges from 25–40% for the residential component
  • ORL has paid | 1,381 crore towards premium for ~8 mn sq ft area FSI from August 2021-till date. ORL is also looking to launch a residential project at Thane during Q4FY22, Q1FY23 after undertaking modification in designs and amendments to some lifestyle-related-profiles. The company has already paid
    | 200 crore towards premium for required FSIs. The project is likely to contribute significantly to the sales count in FY23, FY24
  • The management expects a rise in units/flat prices across major locations with increase in demand and rise in input costs
  • Operating margin during Q3FY22 moderated due to a change in product mix with higher contribution from comparatively lower margin projects and conservative revenue/margin recognition method
  • During Q3, it acquired 4.3 acres parcel in Bhandup for ~| 115 crore (plus taxes). The development plan would be shared in coming quarters

We expect sales momentum in FY23 to be robust driven by new launches in Thane and Goregaon/Borivali subsequent phases. However, at the CMP, a lot of these expectations are priced in. We maintain HOLD with a target price of | 1000/share. Further value accretion will be seen once new foray into non MMR and society redevelopment projects are seen. A pick-up in Worli also remains key.

Quarter financial variance

   Q3FY22   Q3FY22E   Q3FY21   YoY (Chg %)   Q3FY22   QoQ (Chg %)   Comments 
Income from Operation 832.0 889.5 828.4 0.4 754.3 10.3  
Other Income 14.2 14.3 9.2 54.8 14.3 -0.6  
Operating Cost 461.9 415.0 373.6 23.6 344.0 34.3  
Employee cost 15.7 16.0 14.7 6.7 15.6 0.9  
Other expenditure 22.8 44.5 57.6 -60.3 21.5 6.0  
EBITDA 331.6 414.0 382.5 -13.3 373.1 -11.1  
EBITDA Margin (%) 39.9 46.5 46.2 -632 bps 49.5 -962 bps  
Depreciation 9.9 10.3 10.3 -4.3 10.1 -2.2  
Interest 20.0 17.1 20.2 -1.0 17.1 16.5  
PBT 315.9 400.8 361.1 -12.5 360.2 -12.3  
Taxes 83.7 105.0 74.3 12.6 95.4 -12.2  
PAT 467.5 297.8 286.7 63.1 266.6 75.4  
 Key Metrics               
Sales Volume (in sq ft) 10,40,679   5,10,383 103.9 4,43,806 134.5  

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