ICICI Direct is bullish on Oberoi Realty has recommended buy rating on the stock with a target price of Rs 500 in its research report dated October 24, 2018.
ICICI Direct's research report on Oberoi Realty
Oberoi Realty's (ORL) sales volumes jumped 37.6% YoY to 2.39 lakh sq ft (lsf) (our estimate: 1.85 lsf), clocking sales value of Rs 567.5 crore. Revenues grew robustly by 95.1% YoY to Rs 592.1 crore (our estimate: Rs 403.7 crore) as Eternia project hit revenue recognition threshold during the quarter EBITDA margin declined 400 bps YoY to 50.0% (our estimate: 51.7%) due to higher operating cost (43.5% as a % of revenues in Q2FY19 vs. 36.5% Q2FY18) and change in project mix PAT grew 105.0% YoY to Rs 213.8 crore (our expectation: Rs 136.9 crore) mainly led by robust topline growth and higher other income Of the Rs 1200 crore that ORL raised through the QIB route in Q1FY19, Rs 105.0 crore have been utilised for the purpose of working capital and balance Rs 1095.1 crore are temporarily invested in Liquid Mutual Funds (Rs 662.7 crore) and Fixed Deposits (Rs 432.4 crore).
We like the company given the quality of land bank, its healthy balance sheet and management bandwidth to execute large projects. We also believe ORL could be key beneficiary in the current environment where small developers could face funding risk from NBFC. Beside this, its focus on rental asset portfolio should provide stable cash flow and offers significant upside potential to its valuation. After the recent correction in the stock, we believe valuation is currently attractive. Hence, we upgrade ORL to BUY recommendation with revised price target of Rs 500.
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