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Oberoi Realty’s stock has surged 22% in the last three months (in line with Nifty Realty), given improved macro sentiments for the real estate sector post the rate hike pause in Apr’23 and continued demand momentum. In our recent note, we highlighted that FY24 is likely to be a big launch year for OBER with INR120b of launches planned in 2HFY24 and will lead to 74% growth in pre-sales in FY24. In order to sustain a healthy 15-20% growth rate, the company would have to add new projects into the pipeline. During the 1QFY24 earnings con-call, the management indicated that it is actively discussing potential acquisitions of new land parcels and may also finalize the closure of a few deals in FY24, especially the one in Gurugram. However, with lot of projects (two projects in Thane, GSK-Worli, Peddar Road, Tardeo redevelopment, Andheri redevelopment), already in the plate which are yet to be launched,we believe the management may adopt a cautious approach toward business development and will unlikely be aggressive in pursuing new acquisitions. At CMP, the company is trading at 30% above its total NAV and at 60% premium to value of its residential pipeline thereby factoring in large portion of company’s expected growth. Hence, we downgrade the stock to NEUTRAL.

Upside Risk: Higher-than-expected new project additions in the near term

* Muted pre-sales performance due to the absence of launches; zero sales at 360-West

* Oberoi Realty (OBER) had a subdued quarter with sales bookings of INR4.8b, which was down 37%/29% YoY/QoQ and 39% below our estimate. Muted performance was driven by a YoY drop in sales velocity across projects in Borivali, Goregaon, and Mulund and the absence of any sales in 360-west as compared to three units sold in 4QFY23. Total units sold were down to 110 from 164 in 1QFY23.

* Area booked was down 41%/11% YoY/QoQ to 0.15msf, while blended realization was up 6% YoY to INR32,600/sqft, largely driven by Goregaon (up 21% YoY) and Mulund projects (15-18% YoY)

* Collections doubled YoY to INR11b (up 30% QoQ). OBER generated an OCF of INR7.7b, leading to debt reduction of INR4b to INR27b.

 P&L performance - Revenue was flat YoY at INR9.1b, but 5% below our estimate due to zero sales from 360-west, Worli project, but was offset by higher leasing revenue. However, EBITDA came in 12% higher than our estimate at INR4.7b (down 4% YoY, but up 28% QoQ) due to 14ppts improvement in margin on account of profit recognition from Tower G at SkyCity and higher contribution from the leasing segment. PAT was down 20% YoY to INR3.2b, due to the absence of JV profit contribution.

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