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Sky City Mall And Enigma Project Drive Growth Amid Robust Expansion Plans

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WarrenAINot Invested
Based on Analyst Price Targets

Published

November 25 2024

Updated

November 27 2024

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Key Takeaways

  • Strong demand and successful project launches are driving revenue growth and enhancing earnings through increased sales and rental income.
  • Planned fundraising and potential land acquisitions are set to expand Oberoi Realty's development pipeline and boost long-term growth prospects.
  • Aggressive expansion and reliance on Mumbai Metropolitan Region could pose revenue risks if market stagnation or execution issues arise.

Catalysts

About Oberoi Realty
    Engages in real estate development and hospitality businesses in India.
What are the underlying business or industry changes driving this perspective?
  • The company received a full occupation certificate for the Enigma project at Mulund, indicating potential for increased sales and cash inflow as the project continues to see steady sales, which should positively impact revenue.
  • Strong leasing interest and increasing occupancy in Oberoi's office assets suggest growth in rental income, enhancing net margins through steady annuity-like revenue streams.
  • The opening of Sky City Mall in Borivali, with high leasing activity and forthcoming launches, is expected to drive significant footfall and retail sales, contributing to revenue growth and improved earnings.
  • The successful launch of the residential project in Oberoi Garden City Thane, with impressive sales figures, suggests robust demand and potential future revenue recognition as these sales get booked.
  • The planned ₹6,000 crores fundraise aims to expedite growth through potential land acquisitions and development projects, likely increasing the company's development pipeline and contributing to long-term earnings growth.

Oberoi Realty Earnings and Revenue Growth

Oberoi Realty Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?
  • Analysts are assuming Oberoi Realty's revenue will grow by 24.1% annually over the next 3 years.
  • Analysts assume that profit margins will shrink from 45.6% today to 38.9% in 3 years time.
  • Analysts expect earnings to reach ₹37.9 billion (and earnings per share of ₹99.89) by about November 2027, up from ₹23.2 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₹43.8 billion in earnings, and the most bearish expecting ₹27.0 billion.
  • In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 29.1x on those 2027 earnings, down from 31.2x today. This future PE is lower than the current PE for the IN Real Estate industry at 33.6x.
  • Analysts expect the number of shares outstanding to grow by 1.4% per year for the next 3 years.
  • To value all of this in today's terms, we will use a discount rate of 14.41%, as per the Simply Wall St company report.

Oberoi Realty Future Earnings Per Share Growth

Oberoi Realty Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?
  • The surprise ₹6,000 crore fundraise could suggest potential dilution of equity or increased debt, affecting net margins and return on equity.
  • The company’s aggressive expansion plans and quick deployment of funds into new land acquisitions carry execution risks, which could impact future earnings.
  • Dependency on the Mumbai Metropolitan Region (MMR) and slow diversification into other regions, such as NCR, may limit revenue growth opportunities if the MMR market stagnates.
  • Uncertainty about the timing of project launches, due to strategic market pricing considerations, could lead to delays in revenue recognition and cash flows.
  • Leasing of commercial properties like Sky City Mall may face occupancy and rental risks, especially if broader economic conditions weaken, impacting revenue and profitability.

Valuation

How have all the factors above been brought together to estimate a fair value?
  • The analysts have a consensus price target of ₹1938.86 for Oberoi Realty based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹2688.0, and the most bearish reporting a price target of just ₹1175.0.
  • In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be ₹97.3 billion, earnings will come to ₹37.9 billion, and it would be trading on a PE ratio of 29.1x, assuming you use a discount rate of 14.4%.
  • Given the current share price of ₹1992.45, the analyst's price target of ₹1938.86 is 2.8% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  • We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

How well do narratives help inform your perspective?

Disclaimer

Warren A.I. is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by Warren A.I. are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that Warren A.I.'s analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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Fair Value
₹1.9k
4.1% overvalued intrinsic discount
WarrenAI's Fair Value
Future estimation in
PastFuture020b40b60b80b2013201620192022202420252027Revenue ₹97.3bEarnings ₹37.9b
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Current revenue growth rate
21.45%
Real Estate revenue growth rate
0.18%
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