Robust launches to drive growth momentum for Oberoi Realty in FY22

The company is the top pick of brokerages in the realty space

Oberoi Realty is expected to be a key beneficiary from the rebound in residential real estate in FY22 owing to inventories nearing completion and a launch portfolio. After a decline this financial year, experts expect the residential segment to post robust growth, with the organised segment consolidating its gains.

Analysts led by Abhishek Shukla of India Ratings and Research expect residential real estate to stage a sharp K-shaped recovery in FY22, with the overall floor space sold likely to increase by 30 per cent y-o-y in FY22.

The gains come after an estimated 34 per cent decline in FY21. The recovery, according to him, is expected to be dominated by Grade 1 players, whose sales are likely to grow by 49 per cent in FY22 after a 14 per cent y-o-y increase in FY21.

Oberoi Realty could benefit from this macro trend.

Amar Kedia and Ayush Bansal of Emkay Global Research have highlighted that with unsold residential inventories 10 times its FY20 revenues and the potential to list its annuity assets portfolio of over 8 million square feet in a Real Estate Investment Trust by FY25 indicate that Oberoi Realty is well placed for opportunities.

The immediate trigger for the company would be the success of Oberoi Elysian, a 70-storeyed tower in Goregaon, Mumbai. The tower, which is expected to have 362 units with a ticket size above Rs 4.5 crore, could generate revenues of Rs 1,800 crore.

Adhidev Chattopadhyay of ICICI Securities said: “While the response to completed inventories has picked up from Q3FY21 with Oberoi recording its highest ever quarterly sales bookings in five years at Rs 970 crore in Mumbai, the response to this new tower launch may provide an indicator of underlying demand for new launches in luxury/premium projects.” He expects the realty player to clock over Rs 3,000 crore of sales bookings each in FY22 and FY23 owing to launches and completed/near completion inventories in Worli/Mulund/Borivali projects.

Analysts at CLSA, who have an outperform rating on the company, prefer it to Godrej Properties in the realty space. In addition to the surge in residential volumes, coupled with the scaling up of the rental portfolio, they also expect the cash flow outlook to be strong.

While improvement in the residential segment is the key trigger, the occupancy levels for its office portfolio continue to be stable. The pick-up in the retail segment would depend on how consumption demand pans out and the restoration of rents to pre-Covid levels. It is the hospitality segment (Westin Hotel) that could face headwinds, given the lack of corporate travel and low occupancies.

Given the target prices, there is a 15 per cent upside for the stock from the current levels. Investors can add the stock on dips to benefit from the ongoing consolidation, a strong product portfolio, and low leverage (net debt to equity of 0.17) of Oberoi Realty.