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Bookings traction sustainable in near term

Elysian and 360 West drive margin improvement

* Oberoi Realty (OBER) achieved pre-sales of INR17.6b, up 160% YoY (in line). In FY24, bookings reached INR39.4b, up 22% YoY. The quarterly performance was driven by the new tower at Elysian, which generated INR8b of bookings during the launch in Jan’24. Additionally, the company booked three units at its ultra- luxury project 360 West, with a total value of INR2.2b.

* The traction across other key projects at Borivali and Mulund remained in line with historical run-rate as they generated sales of INR2.2b and INR1.9b, respectively. The new project in Thane (launched in 3Q) generated bookings of INR0.4b across 20 units.

* Collections increased 26% YoY to INR10.8b and net debt reduced INR9b to INR12b with D/E of 0.09x.

* The near-term launch pipeline remains strong and we estimate OBER to report a 41% CAGR in bookings over FY24-26 to INR79b.

* P&L performance: Revenue increased 37% YoY to INR13.1b and OBER reported EBITDA of INR7.9b, up 114% YoY with margin increasing 21pps/12pps YoY/QoQ to 60%. The improvement in margin was led by higher revenue recognition from Elysian and 360 West.

* The other income was up 7x YoY to INR2.4b as the company divested its stake in one of the JV projects. However, due to higher taxes, PAT increased 64% YoY to INR7.8b.

Annuity business delivers steady growth; ARR reached a new high

* Rentals from office assets increased 11% YoY/5% QoQ to INR409m, driven by a 600bp increase in occupancy at Commerz II. The Oberoi mall registered strong performance with revenue increasing 28%/5% YoY/QoQ to INR464m. The EBITDA from the annuity portfolio came in at INR802m with blended margin of 92%. In FY24, annuity assets generated Revenue/EBITDA of INR3.2b/INR3b, up 9%/10% YoY.

* ARR at the Goregaon hotel continues to inch upwards and grew 8% YoY in 4QFY24, resulting in 5% YoY growth in revenue to INR485m with steady occupancy of 83%. EBITDA came in at INR208m with a margin of 43%. In FY24, revenue/EBITDA from the hotel increased 13%/14% YoY to INR1.7b/0.7b and ARR increased 15% YoY to INR12,840.

Key management commentary

* Launches: The show apartments at Pokhran road, Thane, are completed, and the project remains on schedule for launch during the festive season (Oct’24). Additionally, there are plans to launch a new tower at Borivali and offer inventory on higher floors in Mulund in FY25. Additionally, the recently acquired projects in Worli (MMR) and Gurugram, along with Tardeo, are slated for launch in FY26.

* Annuity Portfolio: Commerz III has obtained the OC and is poised for full leasing within the next two quarters, given the encouraging enquiries received so far. The anchor tenant can acquire ~50% of the asset, with rentals commencing from Apr’24. The Borivali mall is largely complete and is scheduled to be operational by Oct’24. These two assets are expected to significantly contribute to rental income growth, reaching INR10b by the end of FY25.

* Business development: The Company is mindful of significant cash flow that can be generated from existing developments and intends to redeploy it in a prudent way. There is no dearth of opportunities, but it is crucial to sign a project that is in line with the company’s execution capabilities

Valuation and view

* OBER’s completed projects such as Sky City Phase 1, 360-West and EterniaEnigma have the potential to cumulatively generate INR15b+ of surplus cash annually. This, coupled with the scale-up in rental income, provides enough firepower to capture the business development opportunity.

* At current valuations, OBER’s residential business implies a value of INR360- 370b. The estimated value of the existing pipeline, including the Gurugram project, is INR230b, implying 50-60% of going concern premium, which already accounts for prospective business development in the near term.

* We roll forward our estimates and incorporate contribution from the new Worli project, resulting in an increased TP of INR1,435. Reiterate Neutral.

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