Sell Oberoi Realty Ltd Rs. 1,580 By Geojit Financial Services Ltd
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Robust Q1FY25 earnings; expensive valuation
Robust Q1FY25 earnings; expensive valuation Oberoi Realty (ORL) is a premium real estate developer with over 45 completed projects spread across strategic locations in Mumbai. The company also acquired about a 15 acre land parcel in NCR to expand its market.
* In Q1FY25, ORL’s consolidated revenue surged 54.4% YoY to Rs. 1,405cr, primarily due to higher sales of residential properties.
* EBITDA margin widened 590bps YoY to 60.6%, due to lower operating cost. Profit after tax grew 81.7% YoY to Rs. 585cr.
* Despite robust earnings and healthy pre-sales, industry demand is expected to eventually balance supply. Delays in completing projects also remain a major concern. In addition, given the high valuation, we remain cautious and maintain our SELL rating on the stock, with a revised target price of Rs. 1,580, based on 3.1x FY26E book value per share (BVPS).
Higher pre-sales, faster increase in margins
In Q1FY25, ORL reported a 54.4% YoY increase in consolidated revenue, reaching Rs. 1,405cr. This growth was fueled by higher sales of residential properties, which grew 64.3% to Rs. 1,178cr. Additionally, the company saw a surge in rental income to Rs. 172cr (a 21.7% YoY increase) and revenue from hospitality grew to Rs. 42cr (a 6.6% YoY increase). The company achieved pre-sales bookings of 2.1 lakh sq ft, valued at Rs. 1,067cr, driven largely by the Three Sixty West, Elysian, and Sky City projects. These three projects contributed ~81% to the total pre-sales by value. The company is determined to launch its prime projects in the upcoming festive seasons.
Decreased operating costs leading to higher EBITDA margin
The EBITDA margin increased 590bps YoY, reaching 60.6%, although it dropped 1,790bps sequentially. EBITDA rose 71.3% YoY to Rs. 852cr, due to a decrease in operating costs as a % of sales. As a result, the profit after tax increased 81.7% YoY, reaching Rs. 585cr.
Key highlights
* The company plans to build a mall, an office building, and a small boutique hotel as a part of the Glaxo-Worli Project, which is set to begin within the next two quarters on a developable area of 1.6mn to 1.8mn sq ft.
* The company also concluded that return of capital is a long way, considering the reinvestment of the future cash flow for compounding.
* The company has signed a development agreement for a 12,790 sq m land at Adarsh Nagar, Worli.
* In the Mulund project, 700 unsold units are delayed due to occupation certificate, which is expected to be received in this quarter.
* The company is preparing to launch the Pokhran Road Project in Thane, which was previously delayed, and towers in Goregaon and Borivali for the upcoming festive season.
Valuation
Oberoi Realty reported healthy performance in pre-sales, with margin expansion and significant increase in earnings during the quarter. Demand for office leasing remains strong and is expected to continue in the next few quarters. However, delays in the completion of projects remain key concerns. We maintain a cautious outlook as the stock is trading at a relatively high valuation, and reiterate our SELL rating on the stock with a rolled-forward target price of Rs. 1,580 based on 3.1x FY26E BVPS.
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SEBI Registration Number: INH200000345
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