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Second wave impacts sales volume…

About the stock: Oberoi Realty (ORL) is a Mumbai-focused premium real estate developer with a presence in the residential, commercial and hospitality segments.

* Residential portfolio of ~13.4 mn sq ft of ongoing projects and further launches in FY22 provide strong growth and cash flow visibility over the medium term with superior product quality, timely delivery record and strong balance sheet

Q1FY22 Results: ORL reported weak Q1FY22 results as expected.

* The company reported sales volume of 0.9 lakh sq ft (up 6.5x YoY on wash out base of Q1FY21 but down 91% QoQ) largely due to second wave impact and high base of Q4FY21, which had a couple of launches including big launch at Goregaon. The sales value was up 5.9x YoY, down 91% QoQ at | 170 crore

* On the financial front, reported revenues grew 141% YoY but were down 64% to | 284.3 crore. Margins at 43.9% were down 334 bps QoQ

What should investors do?

ORL’s share price has grown 2.2x over the past five years (from ~| 310 in July 2016 to ~| 672 levels in July 2021).

* We maintain our BUY rating on the company

Target Price and Valuation: We value ORL at | 830/share.

Key triggers for future price performance:

* Uniquely positioned in MMR’s premium residential segment; eyeing opportunities beyond MMR region over medium term

* Moving towards a balanced mix of retail, commercial and hospitality assets - provides stability to slow-moving and volatile revenue streams

* Recovery in malls, hotels and office assets post Covid

* Strong cash flow visibility from ongoing and planned projects

Alternate Stock Idea: Besides ORL, we like Mahindra Lifespace in real estate space.

* A play on residential expanding real estate portfolio

* BUY with a target price of | 940

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