Oberoi Realty Research Report

Resilient show

After a muted 4QFY18, ORL had an impressive start to FY19 clocking in 0.3mn sqft in pre-sales and Rs 6.2bn in sales value. Revenue came in at Rs 8.9bn in 1QFY19 (lower by Rs 11.3bn due to IND AS 115). Since ORL’s contracts don’t have a termination clause, ORL can continue to follow percentage completion method for revenue recognition.

ORL will continue to assess internal thresholds for booking margins. While the Borivali project has met margin recognition in 1QFY19, for Mulund the entire pending margins will be recognized only later in FY19E. ORL’s recent QIP proceed of Rs 12bn will be used as growth capital towards fresh land purchases (not too eager to indulge in JDAs).

With recent price correction we upgrade ORL to BUY from NEU with Rs 598/sh TP. We continue to assign a NAV premium of 30% to capture terminal value.

Highlights of the quarter

Subvention scheme drive Pre-sales spike: In 1QFY19 the Mulund projects witnessed encouraging pre-sales helped by the subvention schemes. Esquire is overshadowing Exquisite on the more diverse choices for buyers including flats with better views.

Commerz II picking up pace: With ‘We-Work’ coming in Commerz II, total occupancy is at 63.4%. Management remains confident of occupancy breaching 90% by end-FY19E with some LOIs already in place. Additionally Oberoi mall witnessed a lot of renegotiations of older contracts where prices have now been marked to market rates.

Near-term outlook: The QIP proceeds of Rs 12bn will be majorly used for strategic and opportune land acquisitions. Debt repayment is not being considered; instead ORL is evaluating debt finance for asset heavy investment properties with regular cashflows. We remain constructive on ORL.

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