Gladiator Stocks - Oberoi Realty: ICICI Direct

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ICICI Direct's research report on Oberoi Realty

Strategy

Buy Oberoi Realty in the range of Rs 400.00–418.00 for target price of Rs 485.00 with a stop loss of Rs 367.00. Time Frame: Six months

Technical View

The share price has resolved out of past four months healthy base formation (Rs 300-400), which was formed near lower band of past seven years rising channel, indicating acceleration of upward momentum. Thereby offering fresh entry opportunity to ride next leg of up move. We believe, the stock has undergone a healthy basing formation while pricing in many negatives. Strong support is placed at Rs300 as it is confluence of: a) 80% retracement of 2015-19 rally (Rs 212 – 642), placed at Rs 295. b) Price parity of 2013 decline Rs 328-153 (53%), decline projected from 2019 high of Rs 642 (54%), at Rs 290. c) As per change of polarity concept, during 2013-15 on multiple occasions stock faced stiff resistance around Rs 320 mark, which is now acting as strong support . On the oscillator front, monthly RSI logged a bullish crossover, which validates our positive stance. We expect the stock to endure its upward momentum and head towards Rs 485 levels in coming months as it is the 61.8% retracement of entire March-April decline (Rs 525-290), placed at Rs 478

Fundamental View

Residential pain imminent; Consolidation in industry likely

The sharp volume decline amid Covid-19 was an exacerbation of already struggling residential real estate due to weak macroeconomic conditions. The company has maintained its target to launch Thane project by Diwali, subject the normalisation of Covid-19. The company, however, termed the pandemic led dislocation to be the precursor of the industry consolidation with weak players likely to shut shop. While we concur with company’s assessment, we also believe that pain could be elongated considering the big ticket size of real estate as well as relatively steeper impact on key cities including Mumbai. Given the pandemic impact, we lower ORL’s sales volume estimates to 0.7 msf in FY21 (vs. 1.7 msf earlier), while we bake in 1.7 msf volumes in FY22E, with Thane/ Goregaon Phase III, kicking in. We expect the launch timelines of residential to be a function of pandemic status, rather than company’s plan

Commercial vertical stable; mall, hospitality outlook dim

The commercial segment is the only stable vertical in the current condition. Among operational assets, the company expects Commerz I to revert back to 70% occupancy by Q2 end/Q3 beginning post fitout by a lessee. ORL has signed an agreement with Morgan Stanley to lease 1.1 million square feet at Commerz III from 2023 on a long term lease agreement of 9.5 years, which is a key positive. The Borivali mall is expected to be delayed by six months (vs. earlier target of Q4FY21E opening), while Worli hospitality (to be restructured) and mall project, has been put on hold. The company is not expecting much cash burn in Westin, given no project level leverage. Negotiation of rental waiver continues for Oberoi Mall, post which the company can recognise some revenues (recognised zero revenues in Q1)

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