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Putting growth into overdrive!

Oberoi Realty (ORL) has added multiple new residential projects to its portfolio in the NCR and various micro-markets of the MMR region over the last 2-3 years, making it wellpositioned for a diversified scale-up. Consequently, the ability to launch multiple projects simultaneously would lead to a pre-sales CAGR of 16% in FY26-28E, which is much higher than the performance seen in FY16-26. Further, the new assets in the annuity and hospitality portfolios would contribute to growth. Despite the robust scale-up, we expect the balance sheet to remain sturdy, with net cash at INR1.1b/INR2.0b in FY27/FY28. We value the residential business at a 22% premium to its NAV (to capture its enhanced focus on BD), annuity assets at a 7.5-8.0% cap rate, and the hospitality portfolio at 18x EV/EBITDA on FY28E. Since the stock is already trading at a premium valuation, we reiterate our NEUTRAL rating with an SoTP-based TP of INR1,850; we await a better entry point.

Enhanced focus on business development (BD) improves growth visibility

Selective and slower BD, as well as dependence on limited micro-markets, resulted in a slower pre-sales CAGR of ~9% to INR54b over FY16-26 (due to absorption ceiling in these micro-markets). However, by bringing new projects under execution as well as new acquisitions in the last 2-3 years, ORL has created a healthy launch pipeline. Moreover, several of these projects being in new micro-markets have enhanced the growth opportunity with the ability to launch multiple projects simultaneously. The launch pipeline in the next two years includes projects in NCR, Carter Road, Malabar Hill, Worli, Peddar Road, and new phases in ongoing projects, which would lead to a diversified scale-up. We expect a 16% pre-sales CAGR to INR73b over FY26-28.

Annuity and hospitality portfolios ramping up strongly

OBER has notably ramped up its annuity portfolio by adding two assets, increasing the gross leasable area (GLA) by 3x to 6.7msf in the past two years. These led to a robust 57% CAGR in rental income to INR11.3b over FY23-26. The new assets have seen a healthy improvement in occupancy in recent quarters. Further reduction in vacancy levels and rental escalations will lead to a 9% CAGR in annuity income to INR13.5b over FY26-28E. Moreover, we expect a revenue CAGR of 56% in the hospitality portfolio to INR4.8b over FY26-28, aided by the operationalization of two new assets in the next two years. More additions in both these portfolios are planned beyond FY28, which would provide a further growth delta.

B/S to remain healthy due to collections and annuity income growth

ORL has maintained very low levels of leverage, with its net D/E largely under 0.3x across the housing cycles, making it one of the strongest balance sheet companies in the real estate sector. Given the continued prudent approach and focus on balance sheet strength, we are confident that ORL will remain stable even when the cycle turns negative. Even after creating a strong launch pipeline in the past 2-3 years, ORL’s balance sheet remains sturdy. We expect 18% collections CAGR during FY26- 28E, and given the strong cash flow generation during FY26-28, we expect net cash of INR1.1b/INR2.0b in FY27/28E, despite the planned capex

Valuation and view

We value the residential business on a NAV basis and assign a 22% premium to capture the increased focus on BD (our calculations suggest that ORL can command a 50% NAV premium). Further, we value the annuity portfolio at a 7.5-8.0% cap rate and the hospitality business at 18x EV/EBITDA on FY28E. Consequently, an SoTPbased TP of INR1,850 offers limited upside. We reiterate our NEUTRAL rating as we await a better entry point

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