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Motilal Oswal
Oberoi Realty (Buy)
CMP: ₹499.65
Target: ₹650
Oberoi Realty ’s annuity portfolio revenue increased by a robust 33 per cent to ₹310 crore in FY19. Revenue from retail grew backed by renewals while growth in office portfolio increased due to higher occupancy in Commerz II.
With the Thane deal, Oberoi Realty will mark its presence in the mid-income housing segment, where demand has been relatively good because of the rightly sized and priced units. Moreover, the company will be eligible for income tax benefits under affordable housing, provided it receives approvals on time. While Oberoi Realty has limited experience in lower-ticket-size projects, we believe its strong track record of completion/timely delivery, brand equity and strong promoter backing will help it to comfortably execute this project.
This apart, we remain positive on Oberoi Realty due to its a) strong balance sheet; b) strong brand equity; which helps it to command premium pricing; c) execution track record; d) robust line-up of launches in the residential and annuity segments; and e) benefits from the ongoing consolidation in the industry. We thus reiterate our BUY rating with an SOTP-based target price of ₹650/share. Our calculation captures the value emerging from the company’s existing development potential.
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