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FY23 a year of consolidation, FY24 a year of launches

FY23 was a year of consolidation for Oberoi Realty (OBER) as it focused on, a) completion of purchase of 50% of residual inventory in its 360 West, Worli project from Oasis Realty, the JV entity where it held 32.5% stake, for Rs34bn, b) seeking fresh approvals for its two upcoming Thane projects (Pokhran and Kolshet) under the unified DCPR, and c) bringing the Commerz III office and Borivali mall projects near to completion. FY24E is all set to be a year of heavy launches with both Thane launches (Kolshet and Pokhran Road) set to be finally launched, along with a new tower at Elysian, Goregaon and completed Worli/Mulund/Borivali inventory. Hence, we expect OBER to clock at least Rs60bn of sales bookings each in FY24E and FY25E. Further, we expect company’s rental income to rise to Rs11.3bn in FY25E from Rs2.9bn in FY23 as Commerz III/Borivali malls rentals commence rentals from Q1FY25E. We retain our BUY rating with a revised SoTP based target price of 1,210/share (earlier Rs1,125) as we roll forward to Mar’24E NAV and assume a 15% premium to NAV considering business development opportunities. Key risks are decline in demand for residential housing and weak office leasing.

* All eyes on Kolshet/Pokhran launches in Thane in FY24E: The company is targeting launch of 3-4msf in Phase 1 at its Pokhran, Thane project of which residential portion may be 2.5msf (GDV of Rs60bn+) with the balance for a school and hotel. With the project having total carpet area of ~15msf, it may be monetised in ~15 years (~1msf of annual sales run rate at an annual GDV of ~Rs20bn+). Further, the Kolshet project having total carpet area of 1.8msf across 5 towers may see initial launch of 3 towers (GDV of Rs20bn+) along with a new tower in Elysian, Goregaon having GDV of ~Rs30bn. With a total GDV of over Rs110bn across planned launches in FY24E along with completed Worli/Mulund/Borivali inventory, we expect OBER to clock over Rs60bn of sales bookings each in FY24E and FY25E.

* Ongoing annuity capex to peak in FY24E and accrue to rentals from FY25E: The company’s Borivali mall (annual rental potential of ~Rs2.5bn) and Commerz III office (annual rental potential of Rs6bn) are set to reach an advanced stage of completion in FY24E and we expect OBER’s rental income to rise to Rs11.3bn in FY25E from Rs2.9bn in FY23 as these projects commence rentals from Q1FY25E.

* Business development to be a key focus area: The company continues to pursue closure of a large land acquisition in Gurugram, NCR with potential GDV of Rs50bn along with a large MHADA redevelopment project in Andheri, Mumbai. Further, the company is also targeting a FY24E launch for its Peddar Road, South Mumbai redevelopment project where it has bought out tenants and Tardeo, South Mumbai where work is on for the final rehab tower. We are yet to incorporate these in our NAV as we await clarity on exact size and launch date of these projects.

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