Buy Oberoi Realty; target of Rs 524: Edelweiss

Edelweiss' research report on Oberoi Realty

Oberoi Realty has won the bid to acquire GSK Pharma’s 60acre land parcel in Thane for INR5.55bn. We believe the acquisition is value accretive for Oberoi with estimated development potential of ~9.2msf and NAV addition of INR53/share. Its b/s allows further NAV growth through new land acquisition using leverage. We revise our FY18 NAV estimate to INR552/share driven by Thane land contribution and lowering of discount rate (12% v/s 14% earlier). We apply lower NAV discount (5% v/s 10% earlier), in view of compression in sector discount, to arrive at our revised TP of INR524. Maintain ‘BUY’.

Outlook

Oberoi’s low gearing provides room to leverage its b/s and allows it to capitalise on attractive land purchase opportunities and grow its NAV. Plans for Thane land, new launches in Goregaon and sales pick-up in ongoing projects are key stock catalyst. We revise our FY18 NAV estimate to INR552/share to incorporate Thane land value and lower discount rate and apply 5% discount to it to arrive at our revised TP of INR524. Valuations appear attractive - currently trading at 24% discount to our NAV. Maintain ‘BUY/SP’.

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