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Buy Oberoi Realty, target Rs 552: HDFC Securities

HDFC Securities has a buy call on Oberoi Realty (ORL) with a target price of Rs 552.

The current market price of Oberoi Realty is Rs 411.35.

Time period given by the brokerage is one year when Oberoi Realty price can reach the defined target.

View of the brokerage on the company:
After an impressive 1QFY19, ORL posted strong growth in certain pockets (Borivali /Worli) leading to 0.2mnsqft of sales vs (0.3mnsqft QoQ).

Revenue came in at Rs 5.9bn in 2QFY19 (lower by Rs 1.1bn due to IND AS 115).

During 2QFY19 Eternia project reached the profit recognition threshold while Enigma is pending.

APAT came in at Rs 2.1bn in 2QFY19 (lower by Rs 78.6mn due to IND AS 115).

Recent event in the credit markets have made lenders circumspect on incremental real estate exposure. NBFCs may have to curtail sectoral lending owing to tightening liquidity and hardening yields. This shall put pricing pressure on mid tier developers to honor lending commitments.

ORL’s June-18, QIP Rs 12bn proceeds will help tide the liquidity situation and the current mayhem may result in further market share consolidation to organized players.

With surplus liquidity ORL may gain bargain deals on new land acquisitions. In the near term the short-term shock may impact equally as reflected in the stock price correction. We maintain 'Buy' with a target price of Rs 552.

Near-term outlook: ORL is well poised as a large part of its portfolio is nearing completion besides being well capitalized with QIP proceeds of Rs 12bn. New assets viz. Worli/Borivili Malls and Commerz III will add incrementally to its rental stream.
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