Buy This Real Estate Stock, It Could Gain 35% According To Sharekhan

Broking firm Sharekhan is bullish on the stock of Oberoi Realty and has recommended buying the stock for 35% gains.

Strong launch pipeline

The company has a launched pipeline of two towers in Borivali project, three towers in Goregaon, Mulund inventory, Thane launch, and Worli sales going ahead. "The company's Three Sixty West project is expected to receive OC in a month, which would lead to opening up of sales. The company targets to launch its Thane project by Q2FY2023, which has been much delayed due to want of approvals and environment clearance. The company signed two land deals viz. Kolshet, Thane (2.5 msf saleable area), and Peddar Road, Mumbai (0.125 msf saleable area), which are expected to be launched before FY2023 end. The company has signed MoUs in non-MMR regions and few redevelopment projects, which will be announced in the near term. The company is also seeing traction in the commercial business and would be looking at business developments for the same," Sharekhan has said in its report.

Residential market on a growth trajectory

According to Sharekhan, the real estate sector, especially residential realty, is expected to be in the limelight going ahead, as it benefits from the central and state government's favourable policies pertaining to the affordable housing segment. Rising income levels and affordability levels are expected to drive sales for quality organised developers. "Further, organised players are expected to benefit from ample inorganic opportunities in the sector, which is leading to the sector's consolidation. The sector is also expected to benefit from low interest rates, which provide twin benefits in driving demand and reduced funding cost. Overall, we are positive on the residential segment of the real estate market for the aforementioned reasons," the broking firm has said.

Company Outlook

According to Sharekhan, strong growth tailwinds for the near and long term Oberoi Realty has unsold inventory in completed and ongoing residential projects worth ~Rs. 17,000 crore, providing the company a strong growth opportunity to cash in the rising demand in the residential segment in the MMR. Oberoi Realty is constructing retail (Borivali Mall), office (Commerz III, Borivali commercial), and hotels (Ritz Carlton, Borivali Hotel), which is expected to be operational by FY2023 and start contributing to revenue. "Increased occupancy rates at existing office assets along with new projects getting operational would increase its rental income by more than three times in FY2024. Unleveraged balance sheet, redevelopment project venture, and monetisable annuity portfolio provide value creation avenues for future," the broking firm has said.

Retain positive view on the stock; expect

Oberoi Realty is slated to benefit from strong traction in the residential realty segment, which is expected to sustain going ahead. A strong franchise, high residential inventory, increasing rental portfolio, unleveraged balance sheet, and strong housing market tailwinds provide high growth opportunity. The stock is currently trading at P/B of 2.1x on FY2024 earnings and premium to the NAV. However, we see significant value unlocking emerging from planned projects and its rental portfolio over the next two years. Hence, we have a Positive view on the stock with a potential upside of 30-33%. Since recommending the stock has fallen 3%, means the potential gains can be as high as 35%.