Oberoi Realty sales momentum to continue

The Oberoi Realty stock was the biggest gainer in the BSE Midcap index on Monday, up 5.2 per cent and hitting a 52-week high in trade.

The company posted better than expected results for the June quarter, with sales rising 52 per cent year-on-year to Rs 318.8 crore. Higher revenue recognition from its Esquire project in Goregaon, Mumbai, half of overall revenue, helped beat the consensus market estimate of Rs 238 crore.

The higher revenue also boosted operating profit, up 30 per cent from a year before to Rs 165.3 crore.  

On operations, the company booked sales of Rs 410 crore, led by its Worli project, Three Sixty West. The company sold six units for Rs 240 crore or Rs 40 crore a unit, with a combined area of 55,320 sq ft. Operating margins at 51.8 per cent were ahead of estimates as incremental sales at the Esquire project were made at higher realisations than those offered during the launch. Higher rental income helped.  

With the Worli project, Kotak Institutional Equities says the company now has live projects at all its major non-competing locations — Worli, Goregaon, Mulund and Borivali. With three major new project pre-sales launches in the past six quarters, the company is shifting focus to implementation, say analysts at CLSA.

However, if Worli sales are excluded, booking revenue at Rs 170 crore in the quarter showed no growth. Analysts expect bookings to pick up in the current year as the company steps up marketing, especially of Sky City Borivali, its largest project by area. Though operational cash flows were down in the June quarter, given the higher execution and Rs 4,400 crore pre-sales yet to reach revenue recognition, the balance sheet is expected to strengthen, say analysts.

At the current price, the stock is trading at 13.3 times its FY18 estimated earnings. Given the strong revenue visibility and low debt (net debt to equity at 0.1 times), most analysts have a ‘buy’ rating on the stock, with the target price at Rs 354. This is about 13 per cent higher than the current market price. Given the recent stock run-up, investors could look at dips before taking exposure.