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MOSL: OBEROI REALTY (Buy)-Focus on improving pre-sales velocity via subvention schemes

Oberoi Realty: Focus on improving pre-sales velocity via subvention schemes

(OBER IN, Mkt Cap USD3.0b, CMP INR571, TP INR654, 15% Upside, Buy)

 

• Flattish volumes; booking value lower by 24% YoY: OBER’s sales volumes declined 3% YoY to 131,052sf (est. of 132,500sf) and sales value fell 24% YoY to INR2,633m (est. of INR3,095m) in 4QFY18, primarily due to falling traction in its 360 West project. Collections increased 18% YoY to INR5,466m due to higher collection in its Enigma and Esquire projects. OBER’s revenue grew 19% YoY to INR3,450m (est. of INR3,139m) in 4QFY18. EBITDA margin expanded 80bp YoY to 53.1% (est. of 54.1%). Adjusted PAT rose 40% YoY to INR1,429m (est. of INR1,073m), primarily led by a lower tax rate of 20.1%.
• Multiple new launches and focus on pre-sales velocity in FY19: OBER has a strong residential launch pipeline in projects like Sky City, Exquisite III and Thane. It is also likely to begin construction of two new malls (Borivali and Worli) and one commercial office space Commerz III in Goregaon. Focusing on generating strong pre-sales velocity, OBER has launched a subvention scheme for its Exquisite and Esquire projects. According to management, its subvention schemes have received good response. Going ahead, management has indicated to launch such schemes at other projects as well.
• Valuation and view: We value OBER at INR654/share on FY19E. Our calculation captures value emerging from the company’s existing development potential. We maintain our positive view on the stock, with RoE/RoCE expected to improve to 25%/19% by FY19. Maintain Buy. OBER is our preferred Mumbai micro-market play.