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Sustained performance in the residential segment

* Oberoi Realty’s (OBER’s) pre-sales more than doubled YoY (12% above estimate) to INR10.7b, driven by strong bookings at the ‘360-West’, Worli project, which contributed INR4.8b to pre-sales across bookings of six units.

* The sales traction across other projects at Borivali (INR1.9b) and Mulund (INR1.3b) sustained on a YoY basis but was weak sequentially. Elysian Goregaon’s pre-sales grew 64% YoY to INR2b, after the successful launch of the third tower in 4QFY24. Forestville, Thane (launched in 3Q) clocked bookings of INR0.6b across 32 units.

* Collections dipped 9% YoY to INR10b. OBER generated an OCF (post-WC) of INR6.6b, which was partially utilized to reduce debt. Net debt stood at INR8.4b vs. INR12.5b as of Mar’24, with a D/E ratio of 0.06x.

* P&L performance: Revenue rose 54% YoY to INR14.0b (41% above est.) led by higher recognition in 360-West. EBITDA stood at INR8.2b, up 72% YoY, led by 600bp margin expansion to 58% due to product mix. PAT, at INR5.8b, rose 82% YoY and was 46% above our estimate; the margin stood at 42%.

Rentals commence from Commerz III; hospitality business steady

* OBER commenced operations at its largest office tower in Goregaon (2.3msf), Commerz III, with 54% occupancy and contributed INR0.7b of rental income, resulting in a three-fold growth in office rental income to INR1.1b. Occupancy at Commerz II was steady at 93%, while Commerz I, with 76% occupancy, is almost fully leased out.

* The Oberoi Mall clocked a 24% YoY jump in revenue, fueled by the increase in both area and occupancy. On a blended basis, the commercial segment generated an EBITDA of INR1.4b and a margin of 91%.

* Hospitality: Occupancy at Westin, Goregaon was stable at 83%. ARR rose 5% YoY to ~INR12,200. Hence, revenue was up 7% YoY to INR420m. EBITDA margin improved 330bp YoY to 40%, leading to an EBITDA of INR168m.

Key management commentary

* Launches: The Pokhran Road, Thane project remains on schedule for launch during the festive season. Additionally, there are plans to launch a new tower at Borivali and Goregaon in 2HFY25. The Gurugram project along with Adarsh Nagar, Worli and the Tardeo project will be launched in FY26.

* Annuity portfolio: The company is witnessing a strong leasing traction across all three office assets, and they can be fully leased out by the end of FY25. OBER is also hopeful to achieve ~90% occupancy in the Borivali mall in FY25.

* Glaxo land, Worli: The project has a development potential of 1.6-1.8msf carpet area, and management has decided to build a mixed-use annuity project, which would include 0.6msf of mall, a boutique hotel of ~80-100k sqft, and ~1msf for office development.

Valuation and view

* OBER continues to deliver a steady performance in its residential business and has started to witness an uptick in its rental portfolio as it commences operations at its ongoing marquee office and retail assets. The residential segment will also experience a healthy scale-up, with the launch of projects across the MMR and Gurugram regions.

* We expect OBER to post 41% CAGR in pre-sales over FY24-26. However, a major part of the re-rating depends on 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 INR450- 460b. The estimated value of the existing pipeline, including the Gurugram project, is INR230b, implying ~100% of the going concern premium, which already accounts for prospective business development in the near term.

* Reiterate Neutral with a TP of INR1,560, indicating a 10% downside potential.

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