Optimistic for FY13 due to robust order book: Oberoi Realty

On the back of a robust order book, Oberoi Realty is optimisticly looking forward to FY13. In an interview to CNBC-TV18, chairman and managing director Vikas Oberoi said their order book stand at Rs 1,500 crore, which is a 40-50% increase in sales.

For this year, Oberoi says they plan to launch the Worli project this quarter and the Mulund project in Q2. Oberoi posted strong Q4 FY12 results, with margins coming in at 68% and profit at Rs 188 crore. “This was on the back of higher revenue recognition,” admits Oberoi, adding that margins gained on the back of a price rise. Below is an edited transcript of his interview with Latha Venkatesh and Gautam Broker. Also watch the accompanying video. Q: Most of your Q4 numbers look better than the overall average. Will this better performance continue in the current quarter? A: All this is basically recognition of revenue. If there is a lot work that’s happened around this quarter, that amount of revenue gets recognized. Instead of looking at a real estate company from a quarter on quarter perspective, I am trying to push everyone to look at it on an annual basis because with that we have some margin in showing how we are doing. I would ideally insist not even to look at us on a annual basis because there are some years where construction has not been so robust, so one can’t recognize that revenue. Let’s say if you pick a project which is really huge, then until you touch 20-25% of your cost you don’t end up recognizing. So these problems really give you different indications, but one shouldn’t look into all that. Q: How is the general trend in terms of sales that you have done? I thought your overall sales were flat year to year, FY12 compared to FY11. Does FY13 look at least as good? A: So here again if you see that the sales are also based on the construction that I do and the recognition that I can do for that. Unless and until I cross a particular threshold, I am not able to do that. So just to give you a flavour of what 2013 could look like, our order book this year is Rs 1,500 crore, which is almost a 50% increase. I would think 33% but it is almost between 40-50% increase in sales. So in fact the future looks a lot brighter I would say. Q: You mange to sell about 700,000 square feet in this fiscal. What's the expectation for the next year? A: Let me tell you that we were able to sell a lot more, but the only amount of recognition we could do were for 700,000 square feet because we have to cross the threshold of 20-25% of construction. Esquire alone has sold for a good over Rs 850 crore, this is one project in Goregoan. Exquisite where we are doing some amount of revenue recognition is over Rs 1,000 crore. All this will come into play the next year, so suddenly the next year will look a lot better. Q: Where do you think you might end up in FY13 in terms of being able to recognize sales? A: I can’t give forward looking statement, but look at the order book. If the order book has an increase and we continue to build, then the obvious is that the sales will also probably look that much higher. Read on to know more about Oberoi's projects this year.. _PAGEBREAK_ Q: You have quite a few launches lined in Mulund, Goregaon. Are any of these going to yield any revenue in the next year and what’s your expectation of margins as well? A: For these two projects I am not going to be able to recognize any revenue, but there is a change in tax laws and I believe that land is now going to be allowed to be used as a component of cost, so all this is going to change. We are kind of studying how this will impact us going forward, but I don’t think we would be able to recognize revenues on those two. We heavily recognize revenue in Exquisite and Esquire. Q: There were rumours that you had a soft launch for your Worli project at the cost of Rs 35000 per square foot. Is that true? A: No we haven’t done any launch. We want to start sales only after we have finalized the brand operator for the hotel. We wouldn’t start at Rs 35,000, it will be a lot higher than that. Q: The Worli and the Mulund projects were expected to be launched in FY12. What’s the new timeline? A: No, infact if I did say that our Worli launch will be in the first quarter of FY13. Second quarter of FY13 will be Mulund. Here we have to seek approval from MOEF and since this is a regulatory issue, I can’t really bet on it. Worli is completely in our control because there are approvals in place and work is in progress. Once we get this approval in place for Mulund, we will be in a position to start the sales for that as well. So we are simple looking at that one approval to come in place and we will start. Q: We understand that you have taken about 10-12% hikes across your projects on the real estate side and for this quarter itself you had perhaps an improvement in margins in the Westin Hotel to about 38%. Do you see that as the trend in margins for Westin and what would be a sense on the real estate? A: Most of the land we bought is historic, so every time we increase the price margins obviously look better. There was an increase in input cost also, so last quarter we factored that input cost and our margins dropped. In this quarter, when we increased the price and we got traction, margins have increased. So this is what I time and again tell all my investors, which is not to look at us on a quarter on quarter because numbers are confusing. Instead look on an annual basis. I wanted to use this opportunity and not the last opportunity because if I would have done it then I would have been looking like I am giving excuses. If I today it today, yes I duck a compliment coming my way, but nevertheless I can actually speak fact. Q: You were able to effect some higher realizations in the current quarter and in the year gone by, not many people could do it. You still think that prices would move up in some of the products that you are selling? A: I absolutely believe so because what we had envisaged that we will build is now a reality. We are seeing a lot of traction from the customers and this in turn is giving us higher demand. On the back of all this we are able to justify an increase in prices. I would say that the prices at which we were selling earlier were cheaper because we were selling dreams, today those dreams somewhat look like reality. We as a company have delivered and on the back of all that I believe that is greater customer trust and satisfaction and that’s why we are probably able to justify the price that we are asking for. We hope and pray that we continue to deliver and keep the franchise intact.