New launches, cash flows to back rally in Oberoi Realty; stock climbs 29%

The stock of Mumbai-based realty major Oberoi Realty (Oberoi)  is up 29 per cent from its lows in October and is currently trading at Rs 1,377 a share. A new launch in its core market of Mumbai, entry into new markets, and strong cash flows going ahead are positives for the fourth-largest listed real estate player by market capitalisation.

The recent trigger has been the launch of its Kolshet project (Thane) called Forestville in November. The project has a total saleable area of 2.5 million square feet. The project has a total gross development value of over Rs 3,600 crore at launch price. Initially, the company has launched three towers and has been able to sell about a fifth of its open inventory.

“While the competitive intensity in the micro market is very high, Oberoi has launched at an aggressive pricing, and with luxury project specifications. With FY23 pre-sales or bookings declining 17 per cent Y-o-Y, we expect this launch to drive a 30 per cent growth y-o-y for FY24,” said Mohit Agrawal and Saatvik Shetty of IIFL Research.

Kolshet’s phase-1 is expected to generate gross cash flow of Rs 1,280 crore while phase-2 should add up to another Rs 860 crore in the next 5-7 years. While Forestville is a work-in-progress, YES Securities expects strong cash flow from completed projects such as the Eternia, Enigma and 360 West. Cumulatively, from the 3 projects, Oberoi is expected to generate a gross cash flow of Rs 9,100 crore which will aid in implementing its Thane project at a faster pace and help in the acquisition of new projects, say Abhishek Lodhiya and Sonu Upadhyay of the brokerage. The analysts have an add rating on the stock and maintain a premium of 25 per cent on the current portfolio. The sum-of-the-parts target based on one-year forward net asset value is pegged at Rs 1,676 a share. 

Brokerages expect the launch momentum to continue with the launch of Pokhran-2 (Thane) in the next couple of quarters as well as the new phase in Goregaon. The company has also acquired a 15-acre land parcel in Gurugram with a potential of 2.6 million square feet and could help the company generate gross cash flow of Rs 3,000 crore over the next six to seven years.

Given the aggressive business development and launches, IIFL Research expects a 35 per cent annual growth in pre-sales over FY23-25 driven by launches and foray into newer markets like Gurgaon. The brokerage has an add rating with a revised target price of Rs 1,315.

The new launches should help the company maintain its operational performance going ahead. The company posted better-than-expected sales in the September quarter with sequential pre-sales doubling on the back of Worli Three Sixty sales, combined with strong realisations. With cash collections at all-time-highs, net debt dipped to a five-quarter low. While Abhinav Sinha of Jefferies Research has raised Oberoi’s FY24-25 pre-sales estimates by 2-4 per cent, largely on higher realisation, he has a hold rating. The brokerage has a price target at Rs 1,116 set at a 10 per cent premium to net asset value.