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Triggers ahead - Three Sixty West and Thane projects

Oberoi Realty (OBER) booking values are down to INR 7.61bn in 1QFY23 (down 18% QoQ; INR 9.25bn in 4QFY22 and INR 1.7bn in 1QFY22) mainly because of seasonality and increase in stamp duties. In the absence of new launches, sustenance sales from Goregaon, Borivali and Mulund projects have held up well backed by overall buoyancy across Mumbai residential markets. A key development, Three Sixty West, Worli, has finally received its occupancy certificate (OC) and going forward traction is expected in the ready to move in inventory (over INR 83bn). There was no new business development during the quarter however given the strong balance sheet (0.14x net debt to equity) / cash flow position, OBER continues to scout for land parcels. OBER continues to execute well across its existing projects and has multiple growth triggers including i) Thane Pokhran Road project launch, ii) sales pickup in Three Sixty West and iii) more project acquisitions. We maintain ‘BUY’ rating with a Mar’23 TP of INR 1,005 (implying 19% upside). Key risks: Slowdown in residential segment / delay in launches of key projects. 

* Multiple projects nearing completion; Opportunistic launches possible: Area sold came in at 0.4msf (+335% YoY; down 23% QoQ) and sales were largely led by Borivali, Goregaon and Mulund (Exhibit 3). OBER will further opportunistically look to launch towers in Borivali and Goregaon based on the demand supply situation over the coming quarters. Large projects across regions are in advanced stages of completion Mulund (Eternia - 75% and Enigma – 72%), Borivali (Sky City – Tower A-D – 90% and Tower E – 69%) and Worli (Three Sixty – 100%) and sales / cash flow profile are likely to remain healthy.

* Three Sixty West finally gets OC: Three Sixty West (2.28msf; INR 110bn+ revenue potential) has received its OC in the last week of Jun’22 and traction is now expected as customers tend to enjoy GST benefits on a large ticket size product (INR 450mn+ ticket size). Moreover our channel checks indicate limited competing inventory (in terms of ticket size and offering) in the region which can help drive bookings. Sales traction in Three Sixty West would be a key montiorable as company guides for selling out unsold inventory (estimated: over INR 83bn) over the next 3-4 years (Source AR 22).

* Pokhran Road launch expected in 2HFY23: Pokhran Road, Thane (12-14msf developmental potential) has been delayed over the past few years and is now expected to be launched in 2HFY23 (capturing festive demand). Given the historical launch track record, OBER is expected to have a strong sales performance at the time of launch.

* Reported financials strong on account of Goregaon revenue recognition: Reported Revenue came in at INR 9.13bn (+221% YoY; +11% QoQ) while EBITDA margins came in at 53.6% (+9.99% YoY; +11.17% QoQ), EBITDA stood at INR 4.87bn (+295% YoY; +40% QoQ) mainly on account of higher revenue recognition from Elysian, Goregaon (higher margin). PAT increased to INR 4.03bn (+400% YoY; +73% QoQ).

* We maintain ‘BUY’; Mar’23 TP of INR 1,005: We broadly maintain estimates and maintain ‘BUY’ with a Mar’23 TP of INR 1,005 (implying 19% upside).

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