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Last Updated : Oct 24, 2016 04:33 PM IST | Source: Moneycontrol.com

Analysts positive on Oberoi Realty, see strong earnings in FY18

Oberoi Realty shares climbed 5 percent intraday Monday. Analysts retained positive stance on the stock after strong earnings in July-September quarter led by Worli project despite weak market conditions.

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Oberoi Realty shares climbed 5 percent intraday Monday. Analysts retained positive stance on the stock after strong earnings in July-September quarter led by Worli project despite weak market conditions.

With Rs 4,800 crore in pre-sales yet to enter its profit & loss (P&L), visibility on future revenue recognition and cash flow remains high, says CLSA, which continued to rate Oberoi buy with increased target price at Rs 398 (from Rs 360 earlier).


Mumbai-based Oberoi Realty's Q2 presales increased 24 percent sequentially to Rs 500 crore, a positive surprise given subdued market conditions. The presale increase was seen both at its luxury Worli project (up 27 percent) and at other locations (up 21 percent). The 1 lakh square feet of new office leasing space was also encouraging, the brokerage house says.

Its Q2FY17 P&L was subdued, partly on higher rainfall activity.

Profit during the quarter increased 12.9 percent to Rs 84 crore and revenue grew by 32 percent to Rs 252 crore on yearly basis. Operating profit showed a 14.4 percent growth at Rs 125.8 crore but margin contracted 810 basis points at 49.9 percent YoY on revenue mix differences.

Bookings remained very strong in Q2 as area booked increased nearly 3-fold YoY to 1.77 lakh square feet and order book stood at Rs 4,043 crore at the end of September 2016 against Rs 2,723 crore in September 2015.

CLSA says Oberoi's low leverage and management's intention to accelerate development via entering a co-development platform for its retail business implies NAV accretive opportunities in the near term.

With maintaining overweight rating and target price of Rs 370 on the stock, JP Morgan says Worli sale progression and Goregaon Phase 3 response are key monitorables on the business near term.

It expects strong traction in company's earnings in FY18 as new launches done by the company in Mulund / Borivali and Worli reach earnings threshold. Technically the company has almost no land bank with all the projects under construction and pricing / offtake having being established on most.

JP Morgan thinks the business will likely enter into a materially high cash surplus zone by end FY18 (once Worli investment is over) with limited debt leaving it with significant flex on new business development strategy.

Till date in 1HFY17 post launch, Worli project (Ritz Carlton Residences) seems to be building on positive momentum with take up both in Q1 and Q2 being better than expectations. However, it is still early days as 30 units booked out of around 200 units, JP Morgan says.

It further says bookings will need to rise to 50 units to reach revenue recognition and approximately 75-80 units to start causing a major swing in earnings.

That will take 3-5 quarters based on current run rate, JP Morgan believes. According to its research note, total estimated EBITDA for Worli project is close to Rs 1,800 crore (to Oberoi) and but free cash flow to Oberoi is around Rs 3,500 crore.

In Goregaon project, the company just has around 460 units left between Exquisite / Esquire (both at high pricing) and hence a new launch could help correct that anomaly and also help provide offset on sales as Exquisite project starts to roll off by next year, it feels.

The brokerage house says office leasing too has picked up in Commerz II and impact of this will get reflected Q4 onwards (post fit outs etc).

At 12:17 hours IST, the scrip of Oberoi Realty was quoting at Rs 344.95, up Rs 13.05, or 3.93 percent on the BSE.

Posted by Sunil Shankar Matkar

First Published on Oct 24, 2016 01:34 pm