Q2 bookings, launches to maintain sales momentum for Oberoi Realty

Sharp run in stock prices over the past three months, however, caps near term upside

The Oberoi Realty stock gained 7 per cent since its results on October 29 and is trading near its all-time high levels. The gains came on the back of strong September quarter bookings and expectations that the growth momentum would continue in the near term. While prospects are sound, valuations post a sharp 30 per cent rally over the last three months could cap near-term upsides.

After a muted June quarter, bookings in the September quarter stood at Rs 828 crore. This was up 4.9 times on a sequential basis and one and a half times its year ago levels on a lower base. The gains came on the back of higher sales across Goregaon and Borivali projects in Mumbai. Its luxury project Three Sixty West saw a subdued performance in the quarter. What could aid in sales growth is the occupancy certificate which is expected to come over the next 45 days; revenue recognition for the project could start from the December quarter.

In additions to bookings, reported revenues and margins on a consolidated basis were ahead of street estimates. While residential business accounts for a bulk of the revenues, the rental business too saw a steady 20-26 per cent growth on a sequential and over the year a ago period basis led by the office space which reported good collections; the Oberoi Mall reported a muted performance. After posting losses at operating profit level in Q1, the hospitality segment turned the corner led by higher occupancies.

Among new launches, the Elysian Tower B project at Goregaon launched on October 28 saw good response with booking value of Rs 790 crore in the first four days of launch. The volumes sold in the project is 0.39 million square feet which is 40 per cent of the area. Analysts believe that the response to the new launch indicates robust demand which bodes well for its other launches. The company has taken price hikes to the extent of Rs 500-Rs 1,000 per square foot in Elysian Phase-2 and is expected to hike prices in the Three Sixty West projects after receiving the occupancy certificate.

Going ahead, Manish Agrawal of JM Financial believes that there are multiple growth levers which includes acquisition of society redevelopment projects, upcoming launch of Thane project (12-14 million square feet), additional launches in Borivali and Goregaon on residential projects front. On the commercial side, completion of Borivali mall and Commerz III office asset could be the other triggers. Any acquisition of land parcels outside the MMR region (National Capital Region is a focus area) will offer new opportunities and strengthen the project pipeline.

While the festive season should be positive both for the residential and commercial segments of the company, analysts at Emkay Global Research highlight certain challenges especially in the Thane and Worli micromarkets. The company faces high competition from Grade-A developers and its foray into Thane (a high-volume market) appears at odds with the developer’s historical preference for high-value or for luxury.

Further it has a high inventory overhang of over 60 months in Worli as compared to 26 months in Mumbai Metropolitan Region as of March 2021. Rahul Jain and Ayush Bansal of Emkay also highlight that a significant proportion of office and retail annuity assets (accounting for 42 per cent of Dec’22 gross asset value) are under construction. There could be delays on account of slower leasing activity and return to normalcy on the rentals front, they add.

With the Oberoi Realty stock gaining 120 per cent over the last one year and given that the target prices are around the Rs 1,000 mark, investors will have to await a correction to benefit from the upside in the medium term. At the current price, the stock is trading at 29 times its FY23 earnings estimates.