MOSL: OBEROI REALTY (Buy)-INITIATING COVERAGE: Island of prosperity-Sharp focus, trusted brand – the key strengths

​OBEROI REALTY (INITIATING COVERAGE): Island of prosperity; Sharp focus, trusted brand – the key strengths

(OBER IN, Mkt Cap USD2.4b, CMP INR452, TP INR580, 28% Upside, Buy)

• Oberoi Realty (OBER) is a Mumbai-focused premium real estate developer, with presence in the residential, commercial and hospitality segments. The sharp focus on delivery of quality products has helped the company create a strong brand over the past 20 years. Its trusted brand enables its projects to enjoy premium, resulting in superior EBITDA margins of >50%.
  
• Its residential portfolio comprises 19msf of developable area, providing strong growth and cash flow visibility over the next 10-12 years. The recent foray into affordable housing completes its bouquet of offerings and should help it enjoy tax incentives. We expect the company to be a key beneficiary of the likely consolidation post RERA.
  
• OBER plans to multiply its annuity portfolio from 1.6msf to 4.2msf by launching two new malls and an office complex on its existing land bank, which is fully paid for. The expansion will result in leasing income increasing by 4x over the next five years. It will also provide stability to revenues.
  
• We estimate OBER's FY19 value at INR580/share (par to its NAV). However, we believe the company can trade at a premium to its FY19 NAV due to its (1) strong balance sheet, with ample room for leveraging to buy new land and (2) strong brand equity, which helps it to command premium pricing. We initiate coverage with a Buy rating, and value OBER at par to its NAV at INR580/share, implying an upside of 28%.