Neutral Oberoi Realty Ltd For Target Rs.2,056 by Motilal Oswal Financial Services Ltd
Jardin-OGC, Thane launch taking the lead
Operational highlights
* Oberoi Realty’s (OBER) pre-sales grew 144% YoY to INR19.2b (13% lower than estimate) in 3QFY25, driven by lofty bookings at newly launched project ‘Jardin’ at Oberoi Garden City, Thane, which contributed INR13.3b to pre-sales (70% of 3QFY25 bookings) across bookings of 466 units.
* Elysian pre-sales grew 88% YoY to INR2.3b, while project 360 West grew 93% YoY to INR1.5b. Sales traction was weak for other projects - Eternia (INR0.2b), Enigma (INR1.0b), Sky City (INR0.4b), and Forestville Thane (INR0.4b).
* Collections grew 56% YoY to INR13.9b. OBER generated OCF (post WC) of INR3.7b. Net debt stood at INR1.1b vs. INR2.8b as of Sep’24, with a D/E ratio of 0.02x. OBER also raised INR15b via non-convertible debentures in 3QFY25.
* P&L performance: Revenue rose 34% YoY to INR14b (4% below est.), led by higher recognition in 360 West, Eternia, and Skycity. EBITDA stood at INR8.6b, up 68% YoY, led by 12pp margin expansion to 61% due to product mix. PAT, at INR6.2b, rose 72% YoY and was 2% below our estimate. Margin stood at 44%.
* For 9MFY25, revenue grew 30% YoY to INR41.4b, achieving 73% of the revised FY25E target of INR56.4b. EBITDA stood at INR24.9b, up 53% YoY, led by 9pp margin expansion to 60% due to product mix. PAT, at INR17.9b, rose 57% YoY with a margin of 43%.
Sequential rise in occupancy across assets; Commerz III’s incremental occupancy elevates rentals; Hospitality rates increase
* Following the Commerz III augmentation in 1QFY25, occupancy rose to 77% in 3QFY25 from 65% in 2QFY25, resulting in revenue growth of 19% QoQ to INR1.1b. Occupancy at Commerz II increased to 97%, while Commerz I is close to being fully leased with 96% occupancy. OBER reported total office revenue of INR1.6b (+15% QoQ), with an EBITDA margin of 90%.
* Oberoi Mall continued to deliver good performance with a 12% YoY increase in revenue, supported by an increase in both area and occupancy by 2% YoY and 200bp YoY, respectively. On a blended basis, the commercial segment generated EBITDA of INR1.9b (144% up YoY), maintaining same margin levels of 91% as 2QFY25.
* Hospitality: Occupancy at Westin Goregaon declined to 79%. ARR rose 24% YoY to ~INR16,396. Hence, revenue was up 9% YoY to INR537m. EBITDA margin expanded to 42% (up 48bp YoY and ~5pp QoQ), leading to EBITDA of INR226m.
Key management commentary
* Launches: The Jardin Project, Thane, launched in Q3FY25, showed phenomenal response with sales of INR13.3b in just the first three days of the launch, which contributed a hefty 70% of total Oberoi bookings in 3QFY25. The entire project spans 80 acres and is a mixed-use development with JW Marriott Hotel and Oberoi International School, estimated to be completed by 2027-2028. Additionally, OBER has a launch pipeline at Borivali (1 tower), Goregaon (2 towers), and Forestville Thane (2 towers), which is expected to be launched in 4QFY25 or FY26. The Gurugram, Adarsh Nagar, Worli, and Tardeo projects will be launched in FY26.
* The company witnessed lower bookings from existing projects due to an increase in price, but management is confident that sales will pick up in the coming quarters.
* Annuity portfolio: The company is witnessing strong leasing traction across all three office assets. Commerz I and Commerz II are nearly fully leased out following an increase in occupancy in 3QFY25. With this, all three office assets are expected to be fully leased out by the end of FY25.
* Funds raised (INR 15b) via non-convertible debentures will be used to accelerate growth by acquiring land parcels. This is expected to happen in the next 4-6 months as the company is currently evaluating opportunities.
* The company has successfully concluded the Mulund acquisition transaction of Nirmal Lifestyle through NCLT.
* It has entered into a joint development agreement for ~81.05 acres in Alibaug.
Valuation and view
* OBER is witnessing an uptick in the performance of its residential business. It is also seeing an uptrend in its rental portfolio as it commences operations at its ongoing marquee office and retail assets. The recent Pokhran-2 launch in Thane received strong traction; hence, we believe the residential segment should see a healthy scale-up with the available pipeline across the MMR and Gurugram regions.
* We expect OBER to post a 41% CAGR in pre-sales over FY24-27. However, a major part of the re-rating depends on the re-investment of strong cash flow generation as the company monetizes its completed and near-completion inventories.
* At current valuations, OBER’s residential business implies a value of INR550- 570b. The estimated value of the existing pipeline, including the Gurugram project, is INR300b, implying +100% of the going concern premium, which already accounts for prospective business development in the near term.
* Reiterate Neutral with a TP of INR2,056, indicating an 11% upside potential.
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