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MOSL : OBEROI REALTY: Site visit: 360-West – To cash in on the limited luxury RTMI supply

OBEROI REALTY: Site visit: 360-West – To cash in on the limited luxury RTMI supply

(OBER IN, Mkt Cap USD4.3b, CMP INR951, TP INR1100, 16% Upside, Buy)

We recently visited Oberoi Realty (OBER)’s 360-West, Worli project to understand the unit offerings as well as the sales and pricing strategy post-receipt of its Occupancy Certificate (OC) in Jun’22. Below are the key takeaways:

About 200 units on offer of which 69 have been sold as of Jun’22

• The project consists of two towers: Tower A and Tower B.
• Tower A houses Hotel Ritz-Carlton upto 33 floors and 28 single-floor residential units over the hotel, having a per unit floor plate of 15,000 sqft.
• Tower B is residential with 170 units consisting of 4BHK/5BHK apartments sized at 5,600/7,500 sqft (carpet area) as well as penthouses on top floors.
• OBER has sold 69 units until now of which 68 units are in Tower B and one in Ritz Carlton tower. Hence, the total pending inventories were 129 units.

Targets sale of ~100 units in three years – optimistic or realistic?

• OBER had strategically put a pause on new sales in the project as it filed for fresh approvals under the new Development Control and Promotion Regulation (DCPR) - 2034 plan, which ensured that all additional spaces were now considered as part of carpet area and in-turn improved the salability of the project.
• Post the approvals, OBER received the OC in Jun’22 and it will now restart the sales in the project. Exhibit 3 indicates comparable ready projects across South Mumbai with units priced ~INR400m being largely sold out.
• Thus, considering the latent demand and limited ready to move-in supply (RTMI) of luxury product in the market, the company is hopeful of improved traction for the project.
• It expects to fully monetize its balance ~100 units in Tower-B over the next three years, indicating 30-35 units per year. OBER registered sales of 22 units in FY17, which have been the highest annual sales until now.
• While we have built-in a pick-up in sales velocity in near term due to the pent-up demand, sustenance of high sales velocity will lead to faster-than- expected cash flows and meaningful re-rating potential for the stock.

 

Pricing likely to pick-up given limited RTMI luxury supply

• According to the registrations data, the most recent transactions in 360-West have been closed at INR75,000-80,000/sqft on carpet area while an under-construction project in the vicinity, Raheja Artesia, has traded at INR85,000-95,000/sqft despite one and half years away from delivery.
• Resale transaction in another completed project, Raheja Legend, has garnered a carpet rate of INR110,000-140,000/sqft.
• Considering limited RTMI supply of luxury projects in the vicinity, the pricing for 360-West is also likely to pick-up to INR100,000-120,000/sqft as indicated by the management, resulting in a revenue potential of INR75b for the balance inventory in Tower B.