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The Oberoi Realty stock has jumped 11 per cent since its results were announced last week. The gains came on the back of the highest ever pre-sales in the March quarter and visibility on volumes, expected to translate into higher revenues and cash-flows for FY16. The new launch activity comes after a four-year lull.
The key takeaway is the good performance of new launches in the Mulund and Andheri suburbs of Mumbai. The Mulund property (Eternia/Enigma), launched in the March quarter, was successful, as the company managed to sell 63 per cent of 1.1 million sq ft released inventory. The Andheri project (Prisma), launched in the December quarter also saw good traction. After selling 73,000 sq ft in the December quarter, it sold 25,000 sq ft in the March one. It plans to launch the Borivali project this quarter. Pre-sales for FY15 have been at 1.7 times the FY14 numbers.
While sales bookings moved up sharply, revenue and profits were ahead of expectations. The firm recorded revenue of Rs 344 crore, up 56 per cent over a year. This was driven by the earlier-than-expected revenue recognition of Prisma, which contributed 18 per cent to sales, and two units in its Khar property (Priviera), whose contribution to sales was nine per cent. So, operating profit at Rs 180 crore (up 41 per cent) was 30 per cent ahead of estimates.
The two areas of concern are limited traction in its luxury Worli property and a completed commercial asset — Commerz II — which has only seven per cent occupancy. Analysts believe the situation will improve by end-FY16.
The other key trigger for the stock will be the coming launch of the Borivali project, the land parcel of which was purchased from Tata Steel. Given the strong sales momentum and coming launches, Credit Suisse analysts expect earnings per share to jump from Rs 9.7 in FY15 to Rs 23.4 in FY16. This is expected to improve to Rs 38.9 in FY17. At the current price, the stock is trading at eight times its FY17 estimates.
