Sales momentum strong for Godrej, Oberoi Realty

Retail market especially in Mumbai is giving a premium to established real estate players with a good track record

Mumbai-based developers Oberoi Realty and Godrej Properties saw better traction in bookings or pre-sales of new projects, compared with their southern counterparts like Sobha Realty in the December quarter.

Pre-sales is a term used for all payments made by a buyer to a builder before the project gets ready. While Godrej had pre-sales of Rs 1,200 crore, Oberoi had pre-sales of Rs 1,770 crore and Sobha had pre-sales of Rs 510 crore.

Analysts at Motilal Oswal Securities say there was a sharp deterioration in pre-sales of Sobha, Prestige and Brigade Enterprises while improvement was visible in Mumbai with successful launches of Oberoi (Borivali project) and Godrej Properties (Vikhroli project). Bengaluru-based players had so far shown better sales momentum than rest of the country.

The retail market, especially in Mumbai, is giving a premium to players with good track record, which has helped them launch new projects successfully. While Godrej Properties launched the Vikhroli project in November and sold 93 per cent of available inventory at Rs 18,916 per square foot, Oberoi Realty’s Borivali project (phase 1) was sold at Rs 16,550 per sq ft. Analysts at Citi Research say Oberoi’s good pre-sales performance was a result of strong positioning (credibility, track record, brand value) it enjoys in the Mumbai market. About 89 per cent of the company’s pre-sales in the quarter came from the Borivali project. The key trigger for Oberoi Realty will be the performance of its super luxury Worli project, which is expected to be launched at the end of FY16. Most analysts believe the company is best placed to tap the demand recovery with projects in Mulund, Borivali and Worli.

Pre-sales for Sobha, though stable on a sequential basis, was lower than the peak of Rs 630 crore. The pre-sales in the absence of new launches because of approval delays was largely driven by inventory from its affordable housing project Dream Acres in Bengaluru. The company expects to launch two luxury projects in Gurgaon and Kochi in the near term with a revenue potential of Rs 3,000 crore, which is expected to boost its performance in the March quarter of this year and in FY17. The stock has been falling sharply since the start of the month (and hit a 30-month low recently) as the December quarter net profit was muted as revenue recognition from Dream Acres was lower than expectations (as it was deferred). Analysts expect most of the revenue recognition to come in Q1 of FY17 and have thus cut revenue and profit estimates for FY16.

Godrej Properties expects to launch projects in Bengaluru (0.4 million square feet), phase 2 in Vikhroli (0.35 million square feet) and Ahmedabad in the current quarter. The monetisation of the Bandra Kurla Complex project, to be completed over the next few months, is expected to bring down debt and interest costs. While Oberoi has no substantial debt, Godrej has higher debt to equity ratio amongst the three players.

As many as 90 per cent of the analysts covering these three stocks have a ‘buy’ rating on Sobha, mainly because of attractive valuations. They have a similar rating for Oberoi because of its strong prospects, while only 55 per cent of analysts have a ‘buy’ on Godrej saying it’s a long-term bet.