Upgrade to Buy Oberoi Realty Ltd for the Target Rs 2,130 by Motilal Oswal Financial Services Ltd
The premium scale play
Oberoi Realty’s (OBER) renewed focus on growth and significant project acquisitions position it well to ride the next leg of scale-up. Six new project acquisitions (INR305b GDV; our estimates) in the last 1Y reflect a considerable step-up in business development (BD). We expect sizeable acquisitions in the coming quarters, which should keep the growth engine running. The successful foray into NCR opens a new avenue for growth, while multiple upcoming launches in new micro-markets of MMR should provide diversification and derisk operational performance. We maintain a 43%/27% CAGR in presales/collections, respectively, over FY26-28E. In this growth phase, we see potential for a sharp re-rating of the residential segment’s embedded EV/EBITDA multiple from 9x currently to a five-year average of 17x. We maintain a 35% premium to residential NAV and upgrade the stock to BUY with an SoTP-based TP of INR2,130. The scope of premium expansion leaves room for a further upside
Business development activity to continue at a higher scale
Sizeable project additions post FY24 (INR450b GDV; our estimate) across various micro-markets of MMR reflect OBER’s renewed focus on diversified scale-up. Of this, it added six projects offering INR305b GDV (our estimate) in the last one year alone, which is sharply higher than the historical trends. In its endeavor to sustain scale and growth, OBER is actively scouting for new projects in MMR and NCR. It is following a hub-and-spoke model, allowing it to leverage its established brand, execution capabilities, and market knowledge while expanding into new regions/micro-markets. We expect this ramp-up in BD to continue, supporting pre-sales growth over the medium term.
Multi-location presence to support diversified growth at scale
OBER’s enhanced focus on diversification is reflected in its recent foray into NCR, as well as new launches across MMR micro-markets such as Thane and Carter Road project (Oceanic) over the last 2-3 years. OBER also has a strong FY27-28 launch pipeline across Malabar Hill, Aadarsh Nagar, Peddar Road, Alibaug, Tardeo, and Mulund, along with new phases at Forestville, OGC Thane, and NCR. On the back of contributions from new launches and sustenance sales, we expect pre-sales to expand at a 43% CAGR to INR111b over FY26-28. Multiple projects actively contributing to sales are likely to lead to better diversification and de-risk operational performance over the medium term.
Balance sheet to remain sturdy; cash flows to support growth plans
OBER’s leverage has remained at very low levels historically, with its net D/E largely under 0.3x across housing cycles, making its balance sheet among the strongest in the sector. Despite multiple BDs and the creation of a strong launch pipeline over the past 2-3 years, OBER’s balance sheet remains sturdy, with net debt-to-equity ratio at 0.04x as of 1QFY27. During FY26-28, we estimate a 27% CAGR in residential collections to INR69b, while the annuity and hospitality portfolios are expected to generate additional cash flows. Accordingly, we expect net cash of INR5.0b/INR14.7b in FY27/28, which should position OBER well to pursue project acquisitions at an accelerated pace.
Valuation and view
* OBER’s residential segment has commanded a one-year forward embedded EV/EBITDA of ~17x (five-year average). Historically, the company has witnessed re-rating of the residential segment during instances of pre-sales growth. Since the residential segment is currently trading at ~9x, there is room for sharp rerating going forward, given the growth visibility over the next two years.
* We have valued the residential business on a NAV basis and now factor in a couple of commercial assets that would be sold on a strata basis. This has led to a 9% increase in NAV. Further, we have maintained a 35% premium on NAV to capture the value from forthcoming project acquisitions (our calculations suggest that OBER can command a 60% NAV premium). We value the annuity portfolio at 7.5-8.0% cap rate and the hospitality business at an 18x EV/EBITDA on FY28E. Hence, the SoTP-based TP has increased to INR2,130, and we upgrade the stock to BUY.
* Our calculation of 60% NAV premium in the residential segment implies a oneyear forward embedded EV/EBITDA of 15x. While this is still lower than the five-year average of 17x, it lends us comfort on the potential for further upside in the stock.
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