Oberoi Realty Ltd

NSE:OBEROIRLTY

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to Oberoi Realty Q1 FY '23 Earnings Conference Call. We have Mr. Oberoi, the Chairman and Managing Director of the company; and Mr. Saumil Daru, Director of Finance of the company with us for the call. [Operator Instructions] The conference will be recorded. [Operator Instructions]

Before I hand the conference over to the management, I would like to remind you that certain statements made during the course of this call may not be based on historical information or facts and may be forward-looking statements, including those relating to general business statements, plans, strategy of the company, the future financial condition and growth prospect. The forward-looking statements are based on expectations and projections, and may involve a number of risks and uncertainties and other factors that could cause actual results, opportunities and growth potential to differ materially from those suggested by such statements.

Mr. Oberoi, the Chairman and Managing Director of the company, thank you, and over to you, sir.

[Vikas Oberoi, executive]

Thank you. Good morning, good afternoon, good evening to all of you as per the time zone you have logged in, and welcome to the conference call Q1 FY 2023 Results and Business Update. Thank you all for taking time out for this call. We're happy to see business back as usual, and hope to have a great year across all our portfolios, be it residential, retail, commercial and hospitality.

Despite various dynamics at play in the economy such as inflation, rising costs in supply chain, we at Oberoi Realty have started off with a good year with a strong booking and strong bottom line.

Before we begin, I would like to share with you a few quick business updates. I'm happy to announce that we have received Occupation Certificate for Three Sixty West, and are looking forward to its robust sale. We have also crossed INR 5,000 crores in consolidated sales in our Sky City project with a healthy sales velocity. As is evident, we are witnessing a turnaround in hospitality by maintaining our margins in the Residential and steady recovery in Retail projects.

With this, I would like to open the floor for question and answer, and Saumil and I will both be very happy to answer your questions. Thank you.

[Operator]

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions]. First question is from the line of Kunal Lakhan from CLSA.

[Kunal Lakhan, analyst]

Vikas, first question was on your -- the Worli project again. So you have received the OC now, and I think there's some balance collection of about INR 1,000-odd crores there. Two parts to the question. Yes, firstly, when do you expect the INR 1,000 crores to come by now? Because I'm sure you'll be raising the demand.

[Operator]

I cannot hear. Your voice is not clear.

[Kunal Lakhan, analyst]

Yes. Is it better now?

[Operator]

Yes.

[Kunal Lakhan, analyst]

Yes.

So my first question was on whether -- when can we expect INR 1,000-odd, INR 1,100-odd crores from Worli to come in our books?

And secondly, considering that you have sold your inventory, was INR 2,600 crores, and we've always had a waterfall structure in terms of sharing the receivables, when -- how do you think the future sales get split into -- between us and the partners going ahead? That's my first question as well.

[Saumil Daru, executive]

So Kunal, just quickly jumping in before Mr. Oberoi answers.

Just to clarify, the total booking value in Three Sixty West is about INR 2,684 crores and the amount collected is already some INR 2,519 crores. So there's about INR 150-odd crores to be collected and not INR 1,000-odd crores. That's all.

[Kunal Lakhan, analyst]

Sure, sure.

And in terms of incremental cash flows from Worli now, how would that get split?

[Saumil Daru, executive]

Okay. So Mr. Oberoi, if you could answer that.

[Vikas Oberoi, executive]

Firstly, we're very excited that Three Sixty West has got Occupation Certificate. We have close to 70 apartments that are sold. A lot of them have done their interiors, they moving. What is important for you guys to notice that this came in a day before our RERA deadline. So we are within the time line, number one.

Number two, as far as the split goes, our document or talks of 80% of the money comes to ORL until ORL receives all the investment that they have done in the project, and 20% continue to go to the partner. And once we have recovered, there is a catch-up on the 20% that the partner has taken. And from then on, there is a split basis the agreement. And yes, so that's how.

[Kunal Lakhan, analyst]

Sure. That's helpful.

My second question was on the cash flows that you've shared in your presentation. Your investing cash flow is showing about INR 1,078-odd crores negative. Could you just help us understand what is that?

[Vikas Oberoi, executive]

Saumil, this is yours.

[Saumil Daru, executive]

Yes. So Kunal.

Basically, the investing cash flows take kind of 2 things. One is whether they reflect the treasury activities, so they represent the mutual fund investments. And the second bit is the investment which goes into the capital assets, so which is the construction of Commerz III and basically, what we can say, the Sky City mall. So that's what this represents.

[Kunal Lakhan, analyst]

So we haven't seen much of increase in the CWIP or gross block as such, so would it be fair to [indiscernible]

[Saumil Daru, executive]

[indiscernible] treasury.

If you also see the short-term investments below, it shows about INR 932 crores in that same cash flow?

[Kunal Lakhan, analyst]

Yes.

[Saumil Daru, executive]

Yes. So INR 932 crores is a component of that INR 1,074 crores INR 1,078 crores, sorry.

[Kunal Lakhan, analyst]

Yes, understood. I'll come back in the queue.

[Operator]

The next question is from the line of Puneet from HSBC.

[Puneet Gulati, analyst]

Congratulations on good momentum on the sales side.

Can you talk a bit about what's the progress on Thane, Peddar Road and also share broad economic interest and costs and realization estimates there?

[Vikas Oberoi, executive]

Thane, like I said, that we are planning to launch in the festive season. We are ready with our show apartment, and we believe that the Thane market is a good market. We have mapped sales of some of the prominent developers, and they look very, very encouraging.

Peddar Road, again, is work in progress. A little too early for us to get into exact numbers. We are still on the drawing board. Once we have clarity, we'll come back to you, maybe in a quarter or 2.

[Puneet Gulati, analyst]

So any payment for Kolshet Road and Peddar Road hasn't been done so far, right?

[Vikas Oberoi, executive]

Yes, yes. No payments have been done for both. Whatever was our component to be paid, has been paid. One tranche for Kolshet has been paid, and the entire amount for Peddar Road has been paid. And these are both either revenue share or area share. And, I mean, no input on cost from the landowners. It's a very refined and a unique joint venture. We personally feel very happy and proud of that. That's it. So once we have more clarity, we will be able to tell you.

We do have some numbers on Kolshet. But again, like I said, that's a little bit too premature. We are still on the drawing board. What we did as a business plan when we purchased, or rather when we got into this transaction was one, but we want to come to the market with a filtered version with something much closer to what you will see play out than very early business assumptions.

[Puneet Gulati, analyst]

Okay. So revenue share and area share are still to be frozen in some sense?

[Vikas Oberoi, executive]

No, no, they're all frozen. But like I said, [indiscernible] percentage of the gross area that we will generate, there are percentage of the gross revenue we'll generate.

So we are still working on it. They're still trying to get to the accurate numbers. And then we would rather tell you instead of we telling you. We have a conservative number, but that really doesn't help. We want to be sure.

[Puneet Gulati, analyst]

Understood. Okay.

And any progress on the Glaxo Worli line, what is the plan now? Last thing you talked about still trying to think about commercial space, and have you frozen anything like that yet?

[Vikas Oberoi, executive]

Correct. Correct. Correct.

So like I said that we -- even the last time I said that we were all set to do commercial before COVID broke through. Then we realized that, no, the Residential is a better bet because all across the residential bit better. Eventually, even the Mall business and Commercial is back, we do get a higher SAR when we build commercial, but a lower realization in terms of per square foot revenue. And residential, we get higher realization over lower FAR. So we are still contemplating. Both our plans are ready, but we haven't been able to take a call. We still continue to contemplate.

And we were also waiting -- now that Worli I is built and being sold, this clearly would not be a competition because even if, let's say, one were to do residential, this would be 3, 4 years or -- at the least into making.

Again, we are spoiled for choice. And that's the only reason we are not able to kind of decide, but we should do that soon.

[Puneet Gulati, analyst]

Understood.

And in the current numbers, we're also seeing quite nice uptake on your realization. Do you expect this realization growth to continue into the end of this year as well?

[Vikas Oberoi, executive]

I genuinely feel that this should continue because whatever was ready in the market has pretty much been absorbed. There is very little that is under construction. And even if there is, there is a huge issue of acceptability from the buyer's point of view. Be it the brand name, be it ability to deliver quality, deliver on time. Forget both, actually deliver also.

So given all the uncertainties and under construction and commodity cycle hitting an all-time high, even though there is a little bit of a correction, but still continuing to go high. I see it's imperative for developers to increase price because their input costs are going to go up. And so I feel that you will always see realization go up and even for the ready product. And if they don't, then they'll fall into their own trap of not being able to deliver to their commitment.

[Puneet Gulati, analyst]

Understood.

And my last one is, any plans for another phase launched in Goregaon?

[Vikas Oberoi, executive]

So Goregaon, we have launched 2 buildings. Work is on for 4. And we have seen tremendous velocity. We were pleasantly surprised when we started the second one. It did 3x, 4x of what we wanted.

The good news here is that we don't have pretty much a single square foot that is ready and for sale, maybe one-off flat. Literally like that. Given that, and given that it's become a favorite destination at least for people to stay, we see no reason why we would not launch more phases in the coming quarters. It may not be the immediate next, could be the one after that. But yes, I mean, that's really Goregaon is our cash cow, which we can literally turn the tap on any time we like.

[Puneet Gulati, analyst]

So we should look forward to another launch sometime this fiscal?

[Vikas Oberoi, executive]

Why not, why not, why not.

[Operator]

Next question is from the line of Sameer Baisiwala from Morgan Stanley.

[Sameer Baisiwala, analyst]

Quick question is on the demand scenario, because I copy your initial statement. But given the -- what's going on in the market, the volatility inflation and now the rising mortgage rate, are you seeing any sort of slowdown in terms of footfalls or visits, et cetera?

[Vikas Oberoi, executive]

Sameer, frankly, I'm not seeing any slowdown. And probably one of the stronger reasons is there is a clear shift from these buyers towards -- and I mean, they are gravitating towards better quality developers. So I clearly see our numbers continue to increase.

I would like to believe what you're saying is true, but this must have been true for developers who don't have a good brand name, who have not delivered quality and in time. They are losing customers. So even if, let's say, the overall market is shrinking, our share in the market continues to increase. I mean, if what you're saying is true, this is the only logic I can apply because we don't see any drop in demand. I mean, we continue to see huge momentum. In fact, for me, I feel that construction cost is bound to go up.

So whoever will not book today and not book it to the reputed developer who's known to deliver as promised, will probably lose out because it's not going to be easy for people to continue to hold these prices. Even if there's a slowdown in demand, because you can't be selling it at loss.

[Sameer Baisiwala, analyst]

And the second question is on pricing, and especially for Mulund and Borivali. Have you taken any price increase over the last 3 to 4 quarters? And your thoughts on this.

[Vikas Oberoi, executive]

Sameer, we have only removed certain things. Like, what we did was we -- we were giving, let's say, developers of . So what we have done is we have -- and I mean, some of these were at a higher price. So we've just changed the category and whatever was at a lower price, pushed into a higher price, so on and so forth.

So we have done a little bit of tweaking, price increase by 5%, 7%, 10%. Nothing more than that. Nothing substantial. And it's all --It's real money for us, but it's optics for the world. So we've been able to play around with a price by 5%, 10%. Which looks optical for the world, but it's actual real money for us. And in a very simple, interesting way.

[Sameer Baisiwala, analyst]

Okay.

And this contrast versus what you have done in, say, Worli or Goregaon, but you have taken the headline rates up and quite meaningfully.

[Vikas Oberoi, executive]

Correct. And with no resistance, with no resistance. That's the most amazing part.

[Sameer Baisiwala, analyst]

Wonderful. And that's very clear.

And final question regards is -- just a broader one. Now that there's been a change in the Maharashtra state government, so anything that you can -- we can expect on the regulatory side or any implication for the sector, for the company?

[Vikas Oberoi, executive]

Sameer, you know, we stay away from this -- the [indiscernible]. And we are completely agnostic to who is running the government, and I'm sure everybody means well.

Having said that, I feel one thing for sure that the center-state alignment will help the state. We love the fact that now, bullet train will become a reality very much sooner than what would have happened earlier. So huge positives for the state to be simply aligned with the central government. And so this is one.

I feel, going by our past track record, we see that -- this government also is going to come up with a very positive true people policy. And I think the state is bound to do that. I think it's really bound to do that. And we are like literally 2.5 years in, another 2.5 years to go. So I think any political party would like to really keep these 2.5 years. And especially because these guys have got only 2.5, they'll want to work as if for the 5-year term, they will go all out. Even something like the Versova-Virar Sea Link, I was reading that the central government is ready to do it, state government wanted to do it. Earlier, it would be that "I would share my credit with the central government" and so on and so forth.

So I would say that in all, I think you are much better off. So it's a positive.

[Operator]

Next question is from the line of Parikshit Kandpal from HDFC Securities.

[Parikshit Kandpal, analyst]

Vikas, congratulations on a very good quarter.

So my first question is on Three Sixty West. So if you can just highlight how much price increase you have taken here? How is the prospect pipeline looking? Because as per our [ transact ], it looks towards north of 20 apartments. So if you can just touch upon these first?

[Vikas Oberoi, executive]

So Three Sixty, if you see -- actually, if you see the entire area, and probably we have the best product in the city. I mean, I don't want to sound pompous, probably the best product in the country and among the best in the world. If you see buildings that are not even at par with us are selling at anywhere between INR 100,000, INR 110,000 on carpet. We then believe that we should be in a little higher than that ballpark. So anywhere between INR 100,000 and INR 120,000 on carpet is what we would love to aim at. And fingers crossed.

One other thing I want to tell everybody is that we have got our entire building approved under the 2034 DCR. This means that all the free area that we had taken, the decks, they're all taken in FSI, and the Occupation Certificate is as per the '34 DCR. It is like huge. Not that anything wrong with the earlier one. But today, our RERA carpet area also has gone up big time.

So this, all this really helps us really market the product better and get a better realization. And then on the back of all this and with what is happening in the vicinity, we tend to believe that we could get something like this.

[Parikshit Kandpal, analyst]

Okay. Great, sir.

So any views on the challenges which your partner is facing [indiscernible] project sales?

[Vikas Oberoi, executive]

Sorry, sorry, come again? [indiscernible] what?

[Parikshit Kandpal, analyst]

Any views on the challenges which your partner is facing in this project and [indiscernible].

[Vikas Oberoi, executive]

Not really. I mean, at least -- nothing. I mean, this is a separate project, really.

[Parikshit Kandpal, analyst]

Okay.

And just second question on the business development record. So we have been talking for many quarters now on the [indiscernible] story. And in the last call, you highlighted even you are actively looking at setting up like offices and malls within [indiscernible]. So any update? Are we looking to play ground this year? Potentially, if you can highlight anything we can hear from you on this in the second half? And anything substantial on this front?

[Vikas Oberoi, executive]

I am very, very keen. I'm continuing to be doing that. I want to get in, in the right project at the right time at the right price. For me, it's not about ticking the box at the end of the day. We could have dotted 100 years ahead for the company. We want to focus on the right things. For us, these basic things are very important. A project outside Mumbai is a byproduct of all this. Hence, I would wait for the right project, and only then probably, go by the [indiscernible].

[Parikshit Kandpal, analyst]

But anything likely getting close in this financial year? Because last -- I think you were more positive in the last quarter.

[Vikas Oberoi, executive]

I would say, yes. But again, like I said, that I take these calls very seriously, and I take my commitments really very seriously. And I'm a little skeptical in just committing a date. But I must tell you that we very rigorously continue to go after it. And as and when we get it, we will be there.

[Operator]

The next question is from the line of Parvez Akhtar Qazi from Edelweiss Securities.

[Vikas Oberoi, executive]

Parvez.

[Parvez Qazi, analyst]

Vikas. Congratulations for the good set of numbers.

So 2 questions largely from my side. First, what would be the completion time lines for the Borivali Mall and Commerz III? And second, when can we expect some inventory release in the Sky City project?

[Vikas Oberoi, executive]

So both these projects should be ready by next year March for fit-out. I think the mall should start its commercial activity pretty much in the next year, maybe towards the festive seasons. Our target is to get ready before next Diwali. And same as with the Three Sixty West -- sorry, sorry, same as with the Commerz III. We should be ready with Commerz III for fit-out by March of next year, and rent commencement within a year after that. And that's our commitment also to our tenants, and we are pretty much on time.

What was your other question? Sorry. Okay. The third phase of Borivali also is there in the reckoning. Again, like Goregaon, Borivali also happens to be literally our cash cow. And whatever gets opened, gets sold very, very quickly. And yes...

[Parvez Qazi, analyst]

Can we expect something to come up this fiscal?

[Vikas Oberoi, executive]

Sure. I mean, why not. Yes, we could do that.

Again, if you see Borivali, like I said, that the cost gross INR 5,000 crores of sales, and continuing to do with great velocity. So we do hope -- in fact, and we've done some fresh reconfiguration, and I believe that the markets will love it. These are slightly bigger area apartments, and we see there's a huge push towards larger area, luxury, and we are trying to bring that there now. So -- and with much higher realization.

So huge positive, I would say. And we are looking at launching this within this financial year or so.

[Operator]

The next question is from the line of Pritesh Sheth from Motilal Oswal.

[Pritesh Sheth, analyst]

Congrats on finally getting the OC for Three Sixty West.

My first question is just on similar lines with what Sameer had asked earlier, on the impact of mortgage rates. So we see a drop in sales velocity both in Sky City and Maxima to an extent as well. I'm not trying to be very critical, but -- I mean, particularly, I would assume that these would be the projects where your mortgage mix would be comparatively higher versus the other projects. So anything to read into this drop in sales obviously because of maybe some increase in mortgage rates, if you can have it?

[Vikas Oberoi, executive]

Can I tell you, you'll be very happy to know that we hardly have anything to sell in Maxima. So that's point number one. There is no [indiscernible], it's like a clean sweep there.

On Sky City also, as the earlier question asked was when are you going to launch. We are left with probably 15% or 10% of the inventory that we had launched. So obviously, either these are very higher floors or something like that. And that's why you see. But even there, I mean, you really see numbers. They're not like a drop in velocity. And there are more to do with what is available and people are -- I have a huge backlog of people wanting to buy the next phase when I launch. So a lot of people are holding back.

And then now, you also know that Sky City is virtually near completion, and we should be giving possession soon. People are waiting that I pay all of it and take possession instead of being into a project for that. So absolutely no drop in velocity as far as we're concerned.

And for us, you will be surprised that we have been tracking people who buy our apartments. Most of them take a 10-year loan, repaid in 3 years. And so cost of money in India is anyway very high. And we hardly have any standard deductions for the interest that one pays to buy a house. So most people, even if they are taking loan, it's a stopgap arrangement. So effective cost for them, if it's a 3-year loan, doesn't really work out to be much. And these are things that one really needs to know.

If our borrowing costs are way too low, then one would understand their increase in cost could hurt you in sales. But with the interest cost anyway being high, and so people don't really want to borrow for too long. And I've seen that if I give an attractive price to people where they have to pay construction-linked plan versus a [indiscernible] developers of venture. They're happy paying developers with good repute upfront money as and when you build. They don't want to pay for the credit because it's anyway high. So a few hundred basis points also up against 50, 75, but a few hundred basis points also, I don't see effect.

Yes, the press speaks and makes a lot about it because the government wants -- why do they increase interest? Because they want to actually control inflation, and they then want to send these signals in the market. So emotionally, yes, probably a few people get a little rattled when interest rates go up. But by and large, we haven't seen any impact on sales, not at least to our sales.

[Pritesh Sheth, analyst]

Got it. That's very helpful. And I would agree to your point.

Second question is on your existing waiting fees in your Commerz I and Commerz II. Particularly Commerz I, we have seen at least now 10, 11 quarters since vacancy has remained high. And even there was a drop in occupancy for Commerz II as well. So any comments on them when we should be able to lease that out again fully?

[Vikas Oberoi, executive]

Frankly, both Commerz I and II were never literally our absolute focus. We realize that with Commerz III, we'll have a large portfolio of close to 5-plus million square feet of leasable area. And hence, we now have a business head with an entire team looking after that. And it's just been a few months, you would have seen in social media that we have started doing revisits of all the IPCEs. We have a very customer-centric approach here. And we see very good traction here. And you'll see that we've already started closing deals. And in the coming months, I mean, our internal target is that we will reach 100% occupancy within I and II in this financial year itself.

So again, we've set these targets. We have a team now, a completely focused team. We had a very small team earlier. It was like business by the way for us. Now, this is serious business for us. And we will make sure that we not only get the occupancies at the high 90s, but also push and become the first preferred destination for any customer.

[Operator]

Thank you very much. Ladies and gentlemen, we'll take that as the last question.

I'll now hand the conference over to Mr. Vikas Oberoi for closing comments.

[Vikas Oberoi, executive]

Thank you all for taking time out for this call. We look forward to hearing from you on a regular basis. If you have any queries, please feel free to speak with our CFO or my Investor Relations team, and we will be more than happy to answer all your questions.

Thank you once again, and have a great week ahead. Thank you.

[Operator]

Thank you very much.

On behalf of Oberoi Realty, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.