Buy Oberoi Realty Ltd for the Target Rs.2,145 by Motilal Oswal Financial Services Ltd
NCR success broadens growth runway
In-line 2Q; new launches to drive FY27E pre-sales In 2QFY27, Oberoi Realty (OBER)’s pre-sales surged 6x YoY to INR91.5b (in line), driven by exceptional bookings of ~INR79b at its maiden NCR project – Three Sixty North (Gurugram). The project contributed 86% of quarterly pre-sales. Three Sixty West (Worli) witnessed a pick-up with ~INR2.8b presales in 2Q (~3% share). Further, the Thane projects witnessed better traction, as total sales (Jardin + Forestville) stood at ~INR2.1b (~2% share). The launch pipeline for 2HFY27 includes Aurelius (Pedder Road), Alibaug, and new towers at Jardin and Forestville, and Adarsh Nagar (contingent on approvals), which would drive presales in the coming quarters. We tweak our estimates for FY27 to INR135b (+149% YoY) to incorporate the net sales in NCR and maintain our estimate for FY28 at INR112b (17% YoY decline due to a high base in FY27).
Annuity and hospitality portfolio ramping up well
Rental revenue grew 17% YoY to INR3.4b in 2QFY27. Occupancy was healthy at 96-100% across Commerz I, II, and III, while Oberoi Mall’s occupancy stood at 99%. Sky City Mall occupancy improved marginally to 83% from 82% in 1QFY27. Overall occupancy across annuity assets stood at 95%, with an EBITDA margin of 93% at quarter-end. On the back of healthy occupancy and rental escalations, we retain our annuity income CAGR estimate of 10% to INR13.7b over FY26-28.
Hospitality revenue stood at INR456m in 2QFY27, up 2% YoY, while RevPAR increased 8% YoY to ~INR11,933 and ARR rose 15% YoY to INR15,780. Occupancy remained stable at 75%. The Ritz-Carlton at Three Sixty West and the Marriott hotel in Borivali are expected to commence operations in FY28. We therefore expect a 56% CAGR in hospitality revenue to INR4.8b during FY26-28.
Balance sheet remains sturdy; NOCF generation healthy
Collections in 2QFY27 grew 40% YoY to ~INR19b in 2QFY27. During FY26-28, we estimate collections will record a 27% CAGR to INR69b, supported by strong pre-sales and healthy execution. OBER generated net OCF of INR18.1b during the quarter with ~80% NOCF margin. Its net cash-to-equity ratio stood at 0.02x. Supported by strong cash flows from the residential, annuity and hospitality segments, we expect net cash of INR5.3b/INR15.5b in FY27/28E, respectively
Financials
* In 2QFY27, revenue dipped 6% YoY to INR16.7b. EBITDA was flat YoY at INR10.2b (in line), while the EBITDA margin expanded 460bp QoQ to 61.0%. PAT remained flat YoY at INR7.6b (in line with estimates).
* In 1HFY27, revenue grew 7% YoY to INR29.7b. EBITDA was up 14% YoY to INR17.5b, while the margin came in at 59%. PAT was up 10% YoY to INR13.1b.
Valuation and view
* OBER is likely to report a jump in pre-sales in FY27 given the robust response in NCR and its launch pipeline. Further, the strong ramp-up in business development activity has improved the medium-term growth visibility. The annuity and hospitality segments are scaling up well, and with more additions already planned, we expect profitability to grow strongly in the coming years. In addition, it has one of the strongest balance sheets among peers, which lends comfort.
* We value the residential business on an NAV basis and assign a 35% premium to capture the increased focus on BD. Further, we value the annuity portfolio at a 7.5-8.0% cap rate and the hospitality business at 18x EV/EBITDA on FY28E.
* We slightly raise WACC to 10.6% and increase the cap rate for RLDA to 8.0%. However, following the roll-over of the residential segment’s valuation to FY28, our SoTP-based TP inches up to INR2,145. Reiterate BUY.
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