Oberoi Realty's turnaround needs steady sales growth

ET Intelligence Group: After a few quarters of sluggishness, Mumbaibased real estate developer Oberoi Realty is showing signs of a pick-up in demand in the September quarter, and except for the high-end residential project in Worli, sales improved across most other projects.

This can be attributed to the pent up demand created due to lower sales in the previous quarters following demonetisation, GST and the implementation of the real estate regulatory (RERA) law.

Investors, however, need to track the demand scenario in the coming quarters to confirm if a turnaround is indeed visible.

Oberoi Realty mainly has four residential projects in Mumbai -at Goregaon, Borivali, Mulund and Worli. The first three projects showed good traction during the quarter while sales at Worli project was flat -it sold two flats.

The company sold 84 apartments in the September quarter as against 40 in the preceding quarter . Of this, 21 were sold in the Goregaon project in September against 12 in the preced ing quarter, 39 in Borivali against 23 and 19 in Mulund against 3.

This resulted in the pre-sales of Rs 350 crore for the quarter against Rs 290 crore. Rentals from the commercial projects, which also includes Oberoi Mall remained stable.

As and when the projects hit the revenue recognition threshold, these sales will be reflected in the topline.The September quarter captures only a part of the Goregaon project sales. The consolidated revenue was `310 crore, 14% and 22% higher on sequential and year-on-year basis respectively and operating profit at `169 crore grew 16% and 34% in that order. The operating margin at 54.5% was in-line with expectations.

The company acquired land in Thane for Rs 550 crore during the quarter, which analysts believe is a reasonable deal.

The company's stock has gained 15% in the past five trading sessions.At Wednesday's closing price of Rs 463, its market capitalisation equals its net asset value (NAV) represented by the discounted cash flows from all its current projects, value of commercial projects and the Thane land parcel.

Some of its peers trade at 40-60% discount to their respective NAVs. Oberoi's premium valuation reflects the company's strong brand and less leveraged balance sheet.

The momentum in future sales will be crucial for the company to sustain the valuation premium.