Oberoi Realty: Weak results, new launches key triggers going ahead

Company which reported its numbers after close of market hours on Wednesday registered 27% y-on-y fall in revenues to Rs 190 cr

The Oberoi Realty stock recovered after falling 3% in the morning trade on September quarter results that were below expectations.

The company which reported its numbers after the close of market hours on Wednesday registered a 27% year-on-year fall in revenues to Rs 190 crore.

This was on the back of lower than expected sales from current projects. Ebidta too fell steeply by 43% year-on-year to Rs 86 crore with margins at 46% as against estimates of 58%.

In addition to lower sales, fall in Ebidta and margins were attributed to a one-time payment of Rs 26 crore for approval under the new DCR norms on its Andheri project, Splendor Grande. However, adjusted for this, Ebidta was at Rs 112 crore with margins at 59%, which according to a Motilal Oswal Securities report, was in line with estimates.

Given the lower inventory and sluggish realty market, volumes were down sequentially to 0.04 million square feet from 0.05 million square feet in the June quarter.

The company has been reporting lower volumes over the last year and a half as its projects in Mumbai suburbs of Andheri and Goregaon are nearing completion and it has not launched any new projects. Currently, only two projects, Esquire and Exquisite in Goregaon, accounted for 53% of its sales in the September quarter and almost the entire order book.

While revenues from residential projects were muted, rental income (35% of operating revenues) were robust at Rs 67 crore, a growth of 18% y-o-y. While income from Oberoi Mall, Commerz and Hotel Westin which accounted for Rs 61 crore of this has been growing steadily, margins and occupancy too are showing an improving trend.

It is this slowing trend of sales and no new launches that led to the 30% fall in its share price over the last one year. The stock, which is currently valued at 8 times its FY15 earnings, continues to be 'Buy' among analysts due to the company's zero debt status and net cash of Rs 740 crore at the end of the September 2013 quarter. Analysts have pegged a one-year target price in the range of Rs 245 to Rs 290, which translates into a return of over 33-58%.

Due to the sluggish sales and investments in its Oasis, Worli (Mumbai) project, one time payment for Grande project, as well as advances to contractors/bid money, net cash reduced by Rs 130 crore to Rs 740 crore at the end of the September quarter. With falling sales, lower cash and consequently weaker other income, net profit fell 48% year-on-year and 37% sequentially to Rs 64 crore. Analysts had estimated it at Rs 98 crore.

Going ahead, the Street will be clued to news on launches and approvals of three key projects. The first would be its Oasis project, which is expected to be launched in the second half of the current fiscal. The company is currently zeroing in on a hotel partner and and could announce the same in the December quarter.

The second is a judgement for environment clearance on the Mulund project from the Supreme Court which is expected to come through in March quarter and finally a clearance for its other project in Worli (In FY12, Oberoi had bought out ICICI Venture's stake in this 4-acre property). HDFC Securities analyst Adhidev Chattopadhyay expects these approvals and launches to fall in place in the second half of the current fiscal.