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Aditya Birla Real Estate (ABREL) reported muted operational performance in Q1FY26, which was anticipated, given its limited sustenance inventory and no new launches during the quarter. We expect sharp improvement in pre-sales in H2FY26, as a strong launch pipeline of Rs140bn is planned in the next three quarters (largely back ended). We maintain pre-sales and collections estimate CAGRs of 25% and 32%, respectively, for FY25-27E. Paper division divestment will free up capital and management bandwidth which, along with improving collections, will aid robust real estate scale-up. Balance sheet would remain sturdy (net debt to reduce), despite rapid growth in the residential business within a short span. We maintain BUY with an SoTP-based TP of Rs3,300.

Pre-sales to strongly pick up from H2FY26; healthy launches lined up ABREL’s pre-sales were muted at Rs4.2bn (+61% YoY), given low unsold inventory and no new launches. It has a strong launch pipeline of Rs460bn, of which ~Rs140bn is planned largely in H2FY26. Key projects include Birla Niyaara P-3 (Rs44bn), Birla Arika P-2 (Rs25bn), Birla Punya P-2 (Rs23bn), and Thane (Rs16bn). Hence, we expect presales to strongly pick up from Q3FY26. New BD in the coming quarters should help build a healthy launch pipeline. ABREL expects to scale bookings to Rs150bn by FY28. We maintain 25% CAGR in pre-sales to Rs126bn over FY25-27E.

Paper division divestment likely in H2FY26 The business transfer agreement with ITC for slump sale of the paper business, for Rs35bn is likely to be completed in H2FY26. Of the proceeds, Rs20bn will be used to retire debt, while the rest will fund growth of the real estate business. We see this as prudent as it will enable more efficient capital allocation and channelize the management’s focus on scaling the core real estate business.

Strong collections, paper division sale to deleverage balance sheet Collections grew by 12% YoY to Rs5.5bn in Q1FY26. Net debt in the quarter increased to Rs39bn (vs. Rs36bn in FY25). With progress in execution as well as likelihood of strong pre-sales in H2FY26, we expect quantum of collections to improve in the coming quarters. We maintain our collections expectations from the real estate business at 32% CAGR to Rs47bn over FY25-27E, while the paper business sale will generate additional cash flows, thereby helping reduce net debt to Rs21bn by FY27E (despite new project additions).

We maintain BUY We value ABREL’s residential business at 11.5x embedded EV/EBITDA (~5Y average) and commercial business at 8% cap rate; we factor in FY27E net debt at ~Rs21bn. The valuation implies 65% premium to residential NAV, justified by the expected continuation of project additions in the medium term (further boosting NAV). We maintain BUY with SoTP-based TP of Rs3,300. We see scope for upward re-rating with sustained project additions and more asset-light platform deals (e.g., Mitsubishi) in the medium term.

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