Motilal Oswal's research report on Oberoi Realty
OBER is expecting to receive OC for Commerz III (Goregaon) by end of FY24. Further, Morgan Stanley – which has leased 1.1msf (carpet area), accounting for ~50% of the total area – has commenced fit-outs and likely to start paying rentals beginning FY25. The leasing for the balance area will commence only six months prior to the completion and OBER expects to fully lease out the area by FY25. At full occupancy, Commerz III has the potential to generate INR6.0-6.5b of annual rentals (including CAM) beginning FY26. The company’s Borivali mall is on track to commence operations during Oct-Nov’23. The structure is complete and OBER is progressing on internal finishing at this stage. The phase 1 of residential development at Sky City with five towers occupied by ~1,800 families will be delivered by Sep’23. A total of ~3,200 families are likely to reside in the vicinity with easy access to the mall. The mall will also be connected with both the exit points of the Metro line, which will drive more catchments. INOX has already come onboard as one of the anchor tenants with a 10- screen multiplex and the leasing for the balance area will commence soon. During the recent earnings call, management highlighted that it is witnessing significant demand traction and is confident of achieving full leasing within six months. The mall is likely to stabilize by FY25 and it has the potential to generate annual rentals of INR2.5b. Overall, the company’s annuity rentals are projected to surge to INR12b by FY26 from INR3b in FY23.
We believe strong cash generation will provide a lot of comfort to the company to seek for aggressive business development opportunities, which will provide further growth visibility. We retain our BUY rating on OBER with an SOTP-based TP of INR1,100, implying 28% upside potential.
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