After the Narendra Modi-led BJP’s massive victory in the Lok Sabha elections, expectations for the real estate sector from the Budget ran high. Much to investors’ relief, the Budget has proposed measures to ease liquidity stress in the NBFC space and also announced various sops to revive consumer demand in the sector.

In any case, the sector has been on a recovery path since the early part of 2018, with regulatory initiatives such RERA (Real Estate (Regulation and Development) Act, 2016) and GST (Goods and Services Tax) paying off. The Centre’s increasing focus on the affordable housing segment has further aided realty companies.

Oberoi Realty, a Mumbai-based developer, has benefited from the improving market conditions. Also, the company has been able to command better prices for its properties in both the residential and commercial segments. Strong market presence and a diversified business mix have helped it withstand the challenges in the sector.

Oberoi has a strong pipeline of projects to be implemented over the next few quarters, which would boost its revenue and profits. Favourable locations of its land parcels and projects bode well for the company’s realisations. Investors with two to three-year perspective can buy this stock.

At ₹583, it trades at 16 times its likely per share earnings of FY21, while it is expensive when compared to peers such as Sunteck Realty that trade at 14 times its likely per share earnings of FY21. However, with structural reforms and demand improving, particularly in the residential segment, the company’s prospects look good. The financials are healthy with low debt-equity.

Better prospects

Oberoi Realty has presence in both the residential and commercial segments. About 80 per cent of the revenue comes from the residential segment and 20 per cent from the commercial and hospitality segment. Currently, the company has four operational assets — Oberoi Mall, Commerz I, Commerz II - Phase I and Westin Hotel. The lease rentals and hospitality business are relatively stable, with high monthly rentals and healthy occupancy. For instance, the revenue per sq ft per month for Oberoi Mall for FY19 is ₹234, a growth of 39 per cent Y-o-Y. Similarly, in the commercial office space properties, Commerz II - Phase I, the revenue per sq ft per month increased about 8 per cent Y-o-Y.

With rising demand for quality office spaces from corporates and co-working companies, Oberoi Realty has plans to strengthen its annuity assets over in the next one year. It has already started its work at the Borivali retail development (mall) and expects it to be ready by December 2020. Similarly, another retail development is under construction in Worli. The company also has planned a third addition to its office space development, Commerz-III at Goregaon, for 1.8 million sq ft.

On the residential side, for FY20, the company has plans to launch Exquisite phase III and Thane projects in the next few quarters (mostly during the festival seasons), which will help boost its revenue.

Stable business

Despite the tough market conditions, Oberoi Realty was able to increase its bookings in the residential segment. Favourable locations and the company’s drive to reduce unsold inventories played a key role in revenue generation.

Despite offering discounts, the company has been able to retain its pricing power. While the average property price in Mumbai Metro Region is ₹10,550 per sq ft, according to ANAROCK property consultants, Oberoi’s is 20-30 per cent higher than that of other developers.

Among its residential projects, Sky City in Borivali was a key contributor to the company’s revenue in the March quarter — nearly ₹1,787 crore of revenue was collected from the project, out of a total residential revenue of ₹4,365.8 crore.

The company was able to book revenue from other residential projects as well. About 75 per cent of its Esquire project in Goregaon and more than 50 per cent of its Eternia units in Mulund (West) were booked in the recent March quarter.

The two residential projects were launched in 2011 (completed in 2018) and 2015 (expected to be completed in 2021), respectively.

In its Esquire project, the company booked nearly 46,700 sq ft and close to 6 lakh sq ft in the Eternia project.

The company is expected to reduce unsold inventories in the coming quarters. Improvement in the real estate market, post-Budget dole outs should attract buyers. The company is also expected to open additional units for sales in its residential projects such as Eternia and Sky City.

The revenue recognised till date (up to March 2019) in its residential projects was ₹7,087.47 crore.

For FY-19, the company’s revenue stood at ₹2,069 crore and profit at ₹816.8 crore. Oberoi’s debt-equity ratio is fairly healthy, at 0.2 times.

Note that the company has adopted IND AS 115 (from the June 2018 quarter) and, as such, the numbers are not comparable with the previous years.

 

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