EUR 120.00 For Business Accounts Only

MOSL: OBEROI REALTY (Buy)-Residential sales steady (excl. 360 West)-expect volumes boost from new launches

OBEROI REALTY: Residential sales steady (excl. 360 West); expect volumes boost from new launches

(OBER IN, Mkt Cap USD2.9b, CMP INR546, TP INR650, 19% Upside, Buy)

 

• Change in mix, drags EBITDA margins: Volumes were down 16% YoY (+65% QoQ) to 2,39,968sf in 1QFY20, primarily due to nil sales at the 360 West project (v/s 35,324sf in the year-ago period). Note that 360 West is a super-luxury project, and sales are usually lumpy on a quarterly basis in such big-ticket items. Overall booking value, thus, declined by 36% YoY to INR4,011m. Excluding the 360 West project, the sales performance was steady, in our view. Leasing revenue grew at a robust 28% to INR933m driven by Commerz II Phase I (+80% YoY) in 1QFY20.
• Overall revenue declined 32% YoY to INR6,033m (our estimate: INR7,106m) in the quarter. EBITDA margin shrank 1,300bp YoY to 39% (our estimate: 49.5%) owing to (a) increased contribution from the lower-margin Skycity project (47% contribution to sales value in 1QFY20 v/s 14% in 1QFY19) and as (b) Skycity Tower E and Enigma yet to achieve the revenue recognition threshold.
• On track to launch Thane and Goregaon (Exquisite III) projects by Sep/Oct’19: Management is confident of receiving approvals for the Thane project before Sep’19. A small portion of this project is likely to be affordable housing (AFH), where it will be eligible for tax benefits u/s 80IB. Moreover, Goregaon Exquisite III is likely to be rolled out by Diwali (October) this year. These new launches are likely to drive 1.75x volume growth to 1.5msf in FY20, in our view.
• Concall highlights: (a) 360 West - expect OC between Sep-Dec'19. OBER sold three units in this project in 1Q, but there were three cancellations as well. (b) Borivali and Worli malls' construction is on track. (c) Management believes that the removal of subvention scheme is a long-term positive for the sector and is one step closer to consolidation.
• Valuation view: We remain positive on OBER due to its (a) strong balance sheet, (b) strong brand equity, which helps it to command premium pricing and (3) robust line-up of launches in the residential and annuity segments. We reiterate our Buy rating and derive an SOTP-based TP of INR650. Our calculation captures the value emerging from OBER's existing development potential.