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MOSL: OBEROI REALTY (Buy)-Strong margin expansion of 400bp

Oberoi Realty: Strong margin expansion of 400bp

(OBER IN, Mkt Cap USD2.8b, CMP INR528, TP INR608, 15% Upside, Buy)

• Results exceed expectations: OBER’s revenue grew 41% YoY to INR3,562m (est. of INR3,388m), partially due to a favorable base (3QFY17 was impacted by demonetization). OBER recorded revenue growth of 17% QoQ. EBITDA margin expanded 400bp YoY to 54.1% (est. of 51.4%) due to (i) reduction of 260bp in employee expenses (to 4.2% of net sales) and (ii) 100bp decline in operating expenses (to 38.5% of net sales). EBITDA grew 53% YoY to INR1,926m (est. of INR1,741). Adjusted PAT grew 42% YoY (+15% QoQ) to INR1,202m (est. of INR1,128m).
• Booking value up 52% YoY/15% QoQ to INR4b: OBER recorded sales volume growth of 43% YoY (-12% QoQ) to 151,763sf (est. of 133,930sf), primarily due to increased traction in the Exquisite and 360 West projects. Booking value increased 52% YoY (+15% QoQ) to INR4,063m (est. of INR3,083m). Collections increased 34% YoY to INR4,301m.
• Lease renewals in malls to drive rentals: Commercial annuity income increased 17% YoY to INR594m due to (i) increase in Oberoi mall rentals from INR152psfpm to INR170psfpm and (ii) increase in Commerz II occupancy from 30% to 45%. With anchor tenant renewals due at Oberoi Mall, management has guided for an increase in rentals psf from 1QFY19. Currently, psf rentals for leasable area at malls stand at INR400 for non-anchor tenants. Hotel segment recorded flattish revenue of INR354m, up 2% YoY, primarily as higher room rental per day of INR9,401 (+6% YoY) was offset by a decline in occupancy to 80% from 82% in 3QFY17.