Rate ‘buy’ on Oberoi Realty, and maintain a positive bias on the stock driven by gradual improvement in RoE and RoCE to 16% and 21% by FY17e. Current stock price factors many positives as it trades at 24.2x and 10.5x FY16e and FY17e EPS, 1.8x and 1.6x P/B and 14% discount to NAV of R316.
We hold a positive outlook on Mumbai’s real estate market for next 3-4 years. This is on the back of a low base and high pent up demand. Quantitatively, the demand-supply dynamics are favourable for mid-segment products. Yet, affordability remains a essential gap to be bridged.
In terms of launch preparedness (Mulund, JVLR, Borivali, Esquire) and delivery (Exquisite, Commerz II, Worli), Oberoi is well placed. In our view, implementing smart pricing would be the key strategy for success and potential recovery to operational and financial normalcy by FY16-17.
Management highlighted on a sequential improvement in pre-sales velocity in Q3FY15, with further uptick expected in Q4FY15, on the back of launches. We factor FY15e/16e pre-sales at R770 crore and R1100 crore. We defer the revenue recognition from Esquire to FY16 and Worli to FY17 due to possible delay in sales reaching the 25% mark. This translates into 30-40% cut in FY15e/16e EPS estimates.
Motilal Oswal
