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Strong cashflow visibility to drive valuation

Our view

Oberoi Realty (OBER) in the Q3FY24 launched its most awaited project in KolshetThane(2.5msf) and plans to launch the Pokrhan -2 (~15msf) project in next 1-2quarters. Additionally, the company plans to launch another tower in Goregaon in Q4FY24. Borivali Mall & Commerz-III is near completion and is expected to be given for fit-outs by the end of Q4FY24 which will add significant rental income of Rs8.6bn to the portfolio from FY25. OBER has confirmed the entry in the Gurugram-NCR by executing the agreement for land sale with a potential saleable area of ~2.6msf. With the OC in hand for its 3 projects, the company is expected to generate significant pre-tax cashflow (Rs91bn) which will help smooth execution of under-construction projects as well as allow the company to utilize it for the business development. We have rationalized the average price realization for all the projects and push some projects (annuity and resi.) to FY25 (earlier assumed H2FY24). As all the residential projects are CF positive and 0.18x gearing, we believe with sustenance of strong demand for larger houses, new launches to do well on the back of quality product and delivery track record. We maintain a premium of 25% on the current portfolio& arrived at SoTP based 1year forward NAV of Rs1676/share with ‘ADD’ rating.

Kolshet launch marks official entry of “OBEROI’ brand in Thane:

OBER has launched its Kolshet-Thane project under the name “Forestville” in Q3FY24 which has a total saleable area of 2.5msf. Initially, the company only launched 3 towers of 5 and in just 25days company sold nearly 20-25% of open inventory. With ticket size starting from Rs22.5mn for 3bhk & 4bhk with the carpet starting from 1090sft and Rs50/foor rise. Kolshet’s phase-1 is expected to generate gross cashflow of Rs12.8bn while remaining phase-2 should add up to another Rs8.6bn in next 5-7years. Additionally, the company plans to launch its Pokhran-2 project in the next 1-2quarter with ~15msf carpet potential to generate another Rs174bn gross cashflow over next 8-10years.

Strong cashflow from the completed projects:

OBER holds an occupation certificate (OC) for 3-projects i.e. for Eternia, Enigma and 360 West. Post OC, Eternia has witnessed increased traction for the inventory and sales run rate has improved from ~20 units in quarter to the +40 units while Enigma is expected to remain slower till Eternia inventory is exhausted (similar trend as Exqusite and Esquire). And 360 West is also witnessing relatively higher interest and should exhibit better sales velocity going ahead. Cumulatively, from the 3 projects OBER is expected to generate gross cashflow of Rs91bn which will aid to execute Thane projects at faster pace and acquisition of new projects.

Completion of Borivali Mall & Commerz-III; addition to annuity:

Management reiterated the completion timelines of the Borivali Mall and Commerz-III by the end of Q4FY24 and post that it will be given for fit-outs. For Commerz-III, company has already received part OC. We believe these two assets will add Rs8.6bn to the rental income and hence valued the rental business to Rs140bn at an 11% WACC and 7.5% Cap rate (earlier 8%).

Gurugram a new destination for OBEROI brand:

OBER has executed an Agreement for Sale with Ireo Residences Company Pvt. Ltd. and others for acquiring land admeasuring approximately 14.8acres which has saleable potential of ~2.6msf at Sector-58, Gurugram (Golf course extension road). We believe there is complete vacuum in Gurugram with the presence of only DLF, OBER’s entry will be instrumental and should generate strong gross cashflow of Rs30bn in next 6-7year.

Hospitality witnessing a best phase:

Hotel witnessed strong years with occupancy +82%, ARR of Rs11600/night and RevPAR of Rs9,675/room. Additionally, the company will complete Ritz Carlton by the end of FY25 which will add significant cashflow to the hospitality segment. We valued the Hotel at Rs18.6bn at 20x EV/EBITDA FY25E.

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