Oberoi Realty soars on heavy pipeline, strong cash reserves

In this edition of Prime Property on CNBC-TV18, Oberoi Realty chairman and managing director Vikas Oberoi rubbishes claims of being overconservative and adds that he in talks with landowners for projects in the NCR (National Capital Market).

Incorporated in 1998, Oberoi Realty is one of Mumbai’s leading real estate developers with a special focus on premium and luxury housing. The group, along with its promoters, has completed 5 million sqft of projects till date and has a total development pipeline of 20 million sqft for the next 5-to-6 years.

Oberoi Realty has made it to the top picks of most brokerage firms. Analysts like the company thanks to its zero leverage and a cash reserve of USD 200 million.

Below is the edited transcript of the interview on CNBC-TV18

Q: Why has Oberoi Realty not launched a single project in the last two years?

A: We did launch one project — Grande — in Andheri (East). We have Exquisite and Esquire in Goregaon which are under construction. Each of these projects are anywhere between 1.4 million and 1.9 million sqft. We have also started our Worli project, we are on the 18th floor and have not just officially launched for sale. But we have a lot of inventory and a lot to sell.

Q: The Oasis project in Worli has been delayed due to the inability to zero-in on a hospitality partner. Has the deal been finalised?

A: Yes. Oasis at Worli is a 250,000-sqft project consisting of about 25 apartments. We continue to be in talks with our hotel partner and have also signed a nondisclosure agreement (NDA). The agreement is in the process of being inked. Once that is over and done with, we will surely announce the sale of the project.

Q: And at what price is this project being launched?

A: The pre-launch was offered at a price of Rs 40,000 per sqft and floor rise on top of that. But we have not made up our mind as to what the price will be when we officially launch the project. So, we haven’t really decided on the price as yet. The Worli project commands a price anywhere between Rs 50,000 to Rs 90,000, Rs 90,000 being for a ready project. So we will gauge the market and take a call then.

Q: With a pre-sales of Rs 40-50 crore, will the actual launch be at an even higher premium?

A: Correct. And that is one reason we wanted to also build a bit of a project and then get into the market. Today a lot of projects are stuck due to approvals or environment clearances.. We wanted to be sure that when a purchaser makes up his mind to buy, he should not discount the fact that there can be certain challenges or issues with regards to approval.

Q: Why has it been so important for you to finalise a hospitality partner? Is the idea to have branded residences in partnership with the likes of Grand Hyatt or Four Seasons?

A: You absolutely correct. The delay is not only due to the search for hospitality partners but also to make sure the project is well above-ground. This will probably add to the sales pitch and give a lot of confidence to somebody who is writing a big cheque.

Q: So who exactly is your hospitality partner?

A: The non-disclosure agreement prevents me from announcing our partner. You just have to probably wait for six weeks. All I can says that it is one of the top marquee companies and the project is the first of its kind in Mumbai.

Q: What is your reaction to reports of the company being trapped in zero leverage zone where it won’t take any debt to expand or deploy its cash reserves?

A: The real estate market is cyclical. And as a policy, we do not want to be a land-banking real estate company. We want to be appreciated by our investors as a company that probably is adjusting with the times. We don’t want have an inventory of over five years.

As far as our cash goes, we are more than happy to deploy it, but it should make commercial sense. Our investors clearly understand our prudence. I meet with investors who hold my stock regularly and kind of explain the company’s position and they genuinely appreciate the company is run.

I am really surprised there are reports creating a perception of the company being over-conservative. We are very prudent and place a lot of premium on the cash that we want to deploy.

Q: There is that SEBI deadline on the 25-percent public float that Oberoi Realty will have to meet. So, it is going to be a case where the promoters will just dilute stake or will the company expand its equity base?

A: Firstly, for us the deadline is in October and not June. Though I’ve really taken a decision, I want to see how things pan out for others who have a June deadline and then take a call.

Q: Are you afraid that by October, investors will not have any appetite left for real estate?

A: Not really. I feel everyone has different appetites for different companies. So, I feel if there are investors who like my company and like the way I work, they will obviously want to buy our stock..

Q: Are you planning to leave your comfort zone and enter new cities?

A: I like the NCR (National Capital Region) market - Gurgaon and Noida. We are looking at opportunities there. We want to take up a very small project of maybe USD 30 million through some sort of a joint venture (JV) with the land owner and offer our expertise and customer experience to the Delhi market and see how things pan out..

Q: So are you talking to land owners right now?

A: Yes, we are talking to land owners.

Q: Did you ever want to buy distressed assets?

A: We don't really label assets as distressed or non-distressed. We are happy with any real estate that makes sense for us to buy, build on and make money.