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Weak performance despite the new launch

Sky City and 360 West witnessed moderation in sales run-rate

 The company achieved pre-sales of INR7.9b (up 25% YoY, but down 18% QoQ), 51% below our estimate. For 9MFY24, bookings stood at INR22b, down 12% YoY.

 The new project at Thane generated bookings of INR2.1b and the traction across other key projects at Goregaon and Mulund remained in line with their historical run-rates, generating sales of INR1.2b and INR2b, respectively.

 The decline in sales at Sky City (Borivali) and 360 West impacted the company’s overall performance as the company failed to sustain its usual quarterly run-rate of INR9-10b despite the new launch at Thane.

 The Sky City project recorded sales of 40 units worth INR1.5b vs. 73 units booked in 2QFY24.

 Collections doubled YoY to INR9b and net debt reduced INR3b to INR21b with D/E of 0.15x.

 P&L performance: Revenue decreased 35% YoY to INR10.5b due to higher base as the company commenced revenue recognition from Mulund projects in 3QFY23. Oberoi reported EBITDA of INR5.1b, down 46% YoY with a margin of 48%. Consequently, PAT decreased 49% YoY to INR3.6b.

Annuity business doing well; ARR reached a new high

 Rental revenue from office assets increased 7% YoY/QoQ to INR389m, driven by a 400bp increase in occupancy at Commerz II. The Oberoi mall recorded robust performance with revenue increasing 19%/22% YoY/QoQ to INR443m. The EBITDA from annuity portfolio came in at INR779m with a blended margin of 94%.

 The momentum in the Hospitality segment continued, reaching the highest ARR of INR13,600, up 7%/14% YoY/QoQ and the business generated revenue of INR492m, up 16%/23% YoY/QoQ. Occupancy remained steady at 82%. EBITDA came in at INR205m with a margin of 42% (vs. 35% in 2QFY24).

Key management commentary

Thane: Expect the Forestville project to generate annual bookings of INR5- 7b. The large project on Pokhran road is scheduled to be launched during the festive season (2QFY25) of FY25. However, the company will soon initiate work on the residential area, luxury hotel, and the International School.

Gurugram: Management intends to successfully launch the new project before acquiring additional projects in the micro-market. It has so far paid INR1b toward the land, with the remaining payments linked to certainmilestones.

The accounting method for revenue recognition will be finalized closer to the launch. As of now, both the methods are being followed in the market.

Valuation and view

Given the weak operational performance in 3Q, we reduce our pre-sales estimate for FY24/FY25 by 21%/12%. We believe there are no near-term positive triggers for the stock and given that it is trading at 50% above its residential NAV, a large part of the growth potential from the launch of Thane and Gurugram is already priced in.

Additionally, given the slowdown in traction at existing projects along with an already large project pipeline of seven projects, we believe the company would focus on scaling up the run-rate in its current portfolio before venturing out for additional land parcels. We incorporate contribution from Gurugram project from FY26 which increases our TP to INR1,350. Re-iterate Neutral rating on the stock.

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