Buy Oberoi Realty; target of Rs 650: Motilal Oswal

Motilal Oswal's research report on Oberoi Realty

Change in mix, drags EBITDA margins: Volumes were down 16% YoY (+65% QoQ) to 2,39,968sf in 1QFY20, primarily due to nil sales at the 360 West project (v/s 35,324sf in the year-ago period). Note that 360 West is a super-luxury project, and sales are usually lumpy on a quarterly basis in such big-ticket items. Overall booking value, thus, declined by 36% YoY to INR4,011m. Excluding the 360 West project, the sales performance was steady, in our view. Leasing revenue grew at a robust 28% to INR933m driven by Commerz II Phase I (+80% YoY) in 1QFY20. Overall revenue declined 32% YoY to INR6,033m (our estimate: INR7,106m) in the quarter. EBITDA margin shrank 1,300bp YoY to 39% (our estimate: 49.5%) owing to (a) increased contribution from the lower-margin Skycity project (47% contribution to sales value in 1QFY20 v/s 14% in 1QFY19) and as (b) Skycity Tower E and Enigma yet to achieve the revenue recognition threshold.

Outlook

We remain positive on OBER due to its (a) strong balance sheet, (b) strong brand equity, which helps it to command premium pricing and (3) robust line-up of launches in the residential and annuity segments. We reiterate our Buy rating and derive an SOTP-based TP of INR650. Our calculation captures the value emerging from OBER's existing development potential.