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Residential continues to shine; outlook positive

* Oberoi Realty (OBER)’s reported impressive 3QFY21 results. The Residential segment posted one of the best performances in the last five years in terms of presales volumes/value. The Office space continued to report a stable performance among the operational assets; Retail is also picking up gradually as we trace the path back to normalization. However, the outlook for Hospitality remains bleak until work-related travel resumes.

* We revise our estimates for the Residential segment on the upside by 86%/43% for FY21/FY22. Maintain Buy, with revised TP of INR648.

Residential continues to shine; Commercial Office stands stable

* 3QFY21 performance: Revenue was up 57% YoY to INR8,284m (v/s our estimate of INR4,180m). EBITDA rose 66% YoY to INR3,825m (v/s our estimate of INR2,111m). The EBITDA margin expanded 260bp to 46.2% (v/s our estimate of 50.5%). Adjusted PAT was up 93% YoY to INR2,867m (v/s our estimate of INR1,494m). For 9MY21, revenue/EBITDA fell 22%/8% YoY, while adjusted PAT increased 3%.

* Traction intact for Residential: OBER’s presales volume/value was up 229%/220% YoY to 0.51m sq. ft. /INR9.7b, largely driven by a favorable product mix (skewed toward RTM / properties nearing completion) – characterized by strong demand, low interest rates, and government stimulus. Strong demand dynamics, coupled with a robust launch pipeline, are likely to keep the momentum going for the Residential segment.

* Leasing on stable footing; Hospitality remains subdued: Revenue/EBITDA rose 13%/15% YoY to INR1,041m/INR1,017m. Occupancy at Commerz I improved 800bp sequentially to 42%, while occupancy at Oberoi Mall / Commerz II remained stable at 93.4%/97.4% sequentially. The Hospitality segment remained under pressure due to travel restrictions. Revenue declined 71% YoY (up 72% QoQ) to INR113m, with operating loss of INR0.8m.

Key highlights from management commentary

* (a) Exciting launch pipeline of ~5msf in 4QFY21 – Exquisite III, Goregaon (2.4msf), Sky City Phase II, Borivali (1.8msf), and Thane (1msf); (b) strong outlook on operating performance of Three Sixty West, driven by a robust demand environment.

Valuation and view

* We are enthused by the continued strength in the Residential segment’s performance over the last couple of quarters and its positive outlook – on the back of strong demand dynamics and government-led stimulus, coupled with a robust launch pipeline. Thus, we revise our estimates for the segment by 86%/43% for FY21/FY22.

* We expect Residential to do the heavy lifting and support growth, while Leasing would pick up gradually with the normalization of operations at Oberoi Mall. However, Hospitality remains a dent in the near term. Maintain Buy, with TP of INR648.

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