Buy Oberoi Realty Ltd For Target Rs. 1,001 - Yes Securities
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Our view and valuation:
Good residential sales for a month of active operations in quarter
* We have accommodated for expected price hikes (2‐3% escalations which we earlier considered ‐ive) for residential projects on the back of growing input cost. We believe OBER’s sales velocity to increase from coming quarters, hence we have shortened project cycle. Residential business valued at Rs67.4bn (Rs185/share).
* We assumed company to actively add redevelopment projects of atleast similar size of Shiv Shahi society going ahead so added business development (BD) on Redevelopment and valued at Rs15.4bn translating to Rs42/share (WACC 12%).
* Management is enthusiastic to take ‘Oberoi’ brand to other geographies and actively evaluating opportunities. Hence, we have added BD looking at track record of projects addition. We assumed company to add project to the tune of 5msf each with gap of 3‐5years and came out with value of Rs6.6bn (Rs18/share).
* We believe with consolidation witnessed in sector, better player like OBER will always have upper edge on the back of quality product, delivery track record and lean balance sheet (D/E of 0.17x). Entry in redevelopment business and geographical diversification will further increase brand visibility along with market share gain. We have given 20% premium to current portfolio for being leader in premium residential segment and arrived at SoTP based NAV of Rs1001/share (WACC 10%, Cap rate 8%) hence retain our ‘BUY’ rating on stock.
Result Highlights:
* Oberoi Realty’s (OBER) operational performance was significantly hit by 2nd wave of Covid‐19 while has done presale of 0.09msf (just 20‐25days of full fledge operations in qtr) in Q1FY22 translating to presales of Rs1.7bn (‐ 91%QoQ/602%YoY) in value. OBER collected Rs6.5bn (1%QoQ/661%YoY) on the back of steady construction.
* Oberoi Mall posted revenue of Rs32mn (‐89%Q0Q/114%YoY). Commerz I rental revenue stood at Rs72 mn (7%QoQ/63%YoY) largely driven by higher occupancy (up from 34% in 1QFY21 to 54% in 1QFY22). Commerz II revenue stood at Rs320mn (8%QoQ/‐2%YoY) mostly impacted by drop in occupancy by 140bps YoY to 97.4%. Westin's revenue came in at Rs78mn (‐36%QoQ/213%YoY). ARR remained subdued at Rs4.685 (‐11%QoQ/‐37%YoY).
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