Oberoi Realty Ltd

NSE:OBEROIRLTY

Earnings Call Analysis

Robust Sales and Leasing Activity Drives Future Growth

Oberoi Realty reported a strong quarter marked by significant profitability and encouraging sales, particularly at Three Sixty West, Worli. The company anticipates an increase in occupancy rates across its office assets, with leasing expected to reach 80-90% this year. New project launches are planned for Pokhran, Thane, Goregaon, and Borivali during the festive season. The company also announced plans to develop a new mall, office building, and boutique hotel in Worli. Future rental income is projected to grow significantly, potentially reaching INR 2,000 to 2,300 crores annually with recent investments.

Strong Quarter Performance

Oberoi Realty had a strong start to the fiscal year with robust profitability and impressive sales figures, particularly from their Three Sixty West project in Worli. Sales traction at this site was remarkable, and the company has seen significant leasing interest in their office assets, expecting occupancy rates to rise in the next few quarters. The management expressed confidence in maintaining this momentum.

Upcoming Launches

The company is preparing for multiple project launches in the upcoming festive season, including Pokhran, Thane, and new towers in Goregaon and Borivali. The launch at Pokhran will kick off with the construction of five towers, and actual sales will potentially begin with one or two towers. This seasonal timing aligns with Diwali, which is anticipated to enhance sales volume.

Thane and Kolshet Road Projects

Oberoi Realty's Thane projects, including the Kolshet Road project, have shown impressive progress. Despite being a new market for the company, they have received positive feedback on their design and quality, which has translated into strong sales. The company acknowledges that Thane buyers take their time, but once they decide, they proceed with purchases, indicating a high potential for future sales in this region.

Sales and Leasing Traction

The Three Sixty West project has had a few quarters of declining Average Selling Prices (ASPs), mainly due to the sale of lower-floor units. However, since competing projects will only be ready for delivery in a few years, Oberoi Realty enjoys a monopoly in this segment. They are optimistic about maintaining strong sales velocity going forward. Additionally, their Mulund project is expected to pick up momentum once the remaining occupation certificates are obtained.

Commercial and Mixed-Use Projects

Oberoi Realty is advancing their mixed-use project at the Glaxo Worli site, which will include a high-end mall, office space, and a boutique hotel, all poised to launch within the next two quarters. This project is expected to add an additional INR 800 to INR 900 crore to their rental income, contributing to a projected rental income from all assets of up to INR 2,300 crore.

Leasing Success

The company's leasing business performed exceptionally well, particularly at Commerz III, with 70% of the space already leased out. The management is confident that they will achieve 99% to 100% lease-out rates by the end of the year. This strong leasing activity is indicative of the high demand for quality commercial spaces created by Oberoi Realty.

Financial Health and Future Outlook

Oberoi Realty's balance sheet is robust, with ample cash flow managed efficiently to support ongoing and future projects. Despite the healthy financial status, the company still holds net debt, which is managed strategically through borrowing for annuity assets construction. The company is focused on reinvesting cash flows into high-return projects rather than returning capital to shareholders at this stage. The leadership team remains optimistic about maintaining their growth trajectory and operational excellence.

Earnings Call Transcript 2025-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to the Oberoi Realty Q1 FY '25 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. Please note that this call will be for 30 minutes. [Operator Instructions] This conference call is being recorded, and the transcript for the same may be put on the website of the company.

[Operator Instructions] Before I hand the conference over to the management, I would like to remind you that certain statements made during the conference of this call may not be based on historical information or facts and may be forward-looking statements, including those related to general business statements, plans, strategies of the company and the future financial condition and growth prospects. 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.

I now hand the conference over to 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, and good evening to all of you as per the time zone from which you have logged in, and welcome to the conference call Q1 FY 2025 results and business updates. Thank you all for taking time out for this call. Before I begin, I would like to share with you a few quick business updates.

I'm happy to announce another healthy quarter with strong profitability and encouraging sales traction at Three Sixty West, Worli. We've also witnessed a strong leasing interest across our office assets and expected occupancy to ramp up in the next few quarters. We are gearing up for our Pokhran, Thane, launch and also towers in Goregaon and Borivali in the upcoming festive season.

With this, I now open the floor for question and answer. And both Saumil and I will be happy to take your questions. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Karan Khanna from AMBIT Capital.

[Karan Khanna, analyst]

I had a couple of questions. First, if you can talk about the Kolshet Road project. And if I look at Slide #24, is it fair to assume that the quarter-on-quarter increase in terms of units booked can be partly attributable to any changes that you made in the payment plans for this project? And given that you have a fairly large amount of inventory coming up in the Thane micro market, what initiatives are you taking towards accelerating sales in this project and potentially Pokhran Road as and when you launch it?

[Vikas Oberoi, executive]

Karan, firstly, Forestville as a project is doing really well. We are ahead of our schedule in terms of execution. People are able to see the progress. And people have also appreciated the design and quality of work that we are doing. And the outcome of sales is absolutely that we've kind of understood the Thane market, people take their time and people who have come and visited us 3 or 4 months ago have actually come in and bought apartments.

So we've literally never lost a customer. He's only like waiting in transition literally, and eventually comes in -- comes with the sale. So really no change in, I would say, payment plan or anything like that. In fact, for us, Thane is a new micro market. People have now seen the way we are working and appreciate the quality. And hence, there is this bump up. And I can only tell you that it will only keep improving.

And if you'll also see that it's virtually a cash flow positive project as we speak. So all in all, very happy with the way things are going. And I feel people are literally waiting for Pokhran Road project to get ready. I have a lot of people inquiring about it and we have fingers-crossed. With God's grace, I guess, we should be having a good launch there as well.

[Karan Khanna, analyst]

So just on the Pokhran Road, is it safe to assume that by the festive season that's around Diwali is when you are expecting to launch this project? And if you can also talk about phase wise, how big would the first phase be in terms of the launch?

[Vikas Oberoi, executive]

So we are starting execution on five towers. L&T is being awarded the contract. They have already started work as we speak. And yes, we are gearing up for the festive launch. And we probably might -- work will start on all five towers. We probably might launch one or two towers and then probably pick it up.

[Karan Khanna, analyst]

Sure. Second question on Three Sixty West. We've observed a couple of quarters of decline in the ASPs. Is it because of lower floors? Or is it because of increased competition that you're seeing, potentially some other players in the micro market? And as a follow-up, what sort of visibility do you have on sales velocity for this project in coming quarters?

[Vikas Oberoi, executive]

So frankly, these are lower floors. And without sounding pompous, there generally is no competition to the product we've built, and our partners also sold out on all his inventory. So today, we literally have a monopoly on the inventory, and I see this trajectory going only better.

[Karan Khanna, analyst]

Sure. And then lastly, any further updates on the Gurugram and the Adarsh Nagar projects since the update that you shared last quarter?

[Vikas Oberoi, executive]

So Gurugram, also, we got conveyance of the property. We've registered that. We did it only last week. And even Adarsh Nagar, work in progress. And I guess they are also slated for probably end of this year or early next year sort of launch.

[Operator]

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

[Puneet Gulati, analyst]

So congratulations on great numbers. I think very happy to see your Three Sixty West going well. Do you see this kind of traction into the coming quarters as well?

[Vikas Oberoi, executive]

Frankly, I thought this should have started a lot earlier. Only fingers-crossed that it continues this way. And you all know, I mean, obviously, like there was a fire sale by our partner for his inventory. Now that is all historic data. Going forward, we have monopoly, and there is really no competition to the product that we have.

And a lot of what is being built is probably 3 years, 4 years in delivery or at least 2, 2.5 years. So we have a clear run there. And again, probably not even comparable product. So I think, if things go well, which they should, we should continue to see similar sales in Three Sixty.

[Puneet Gulati, analyst]

And I also saw against INR 475 crores of sales, some INR 120 crores is collected. Is there a payment plan or is it just a quarter-related issue?

[Vikas Oberoi, executive]

No, this actually happened in the fag end of June. You will see all the money coming within this quarter. Sales were at the fag end of June, and so they'll all come.

[Puneet Gulati, analyst]

Okay. Understood. And on your rest of the projects, Adarsh Nagar, Tardeo, Gurugram, you said end of the year. So is the design and all, all in place? And RERA approvals also close to coming? Or do you think when you say launch, you mean start of construction and then you launch later next year?

[Vikas Oberoi, executive]

No. So the design, obviously, is in place. We continue to keep improving, improvising and massaging the plans and all that. But yes, I mean, good work in progress. We really know what we want to do and how we want to do. And at the right time, we will launch both these -- all these.

[Puneet Gulati, analyst]

And lastly, on your Glaxo Worli project, any thoughts on what you're going to do there now?

[Vikas Oberoi, executive]

So I don't know whether I told you all last this thing, we are going ahead with the mall. We are doing an office building and a small -- very small boutique hotel. So we are now gearing up to launch that also. And we will start work probably within the next 2 quarters.

[Puneet Gulati, analyst]

Next 2 quarters. Understood. And what would be the developable area there or carpet area?

[Vikas Oberoi, executive]

We are hoping it should be somewhere around 1.8 million, 1.6 million to 1.8 million square feet.

[Puneet Gulati, analyst]

1.8 million square feet carpet?

[Vikas Oberoi, executive]

Correct. It's massive, really massive.

[Puneet Gulati, analyst]

So what is the configuration likely to be for mall, office and hotel? Any broad thoughts?

[Vikas Oberoi, executive]

Right now, what we are targeting is anywhere between 6 lakh and 7 lakh square feet of mall, a very small component of hotel, probably 80,000, 100,000 square feet, and the rest of this is office. So let's say, 1 million square feet of office space; give or take, 100,000 square feet for hotel; and another 600,000 to 700,000 square feet of mall.

[Operator]

[Operator Instructions] The next question is from the line of Praveen Choudhary from Morgan Stanley.

[Praveen Choudhary, analyst]

First of all, congratulations on a very strong quarter. I know this is despite no new launches, and the margins have been very steady and very strong. So congratulations. I have two very quick questions, if I may.

The first one is Three Sixty West. Once again, I'm following up. I think it was a very strong quarter. What are the factors which determines whether you sell two units or 10 units in a particular quarter, considering, as you mentioned, there's no competition, and there's obviously a lot of demand?

The second question I have is on balance sheet. Your balance sheet is very strong. It's getting better. Can you talk about the use of cash in terms of annual land banking versus construction versus capital return?

[Vikas Oberoi, executive]

So Praveen, firstly, it's the price and really the profile of people. We want to ensure that we sell these apartments to the right kind of people. Because we have, by default, I wouldn't call it by design, created a community that's going to be like the envy of everybody. Everybody in the city would want to be in a building like this.

So it starts with the profile of the person. And obviously, like we have certain expectations from this project. We really worked hard on this. We built a quality way beyond anyone else's imagination. And -- so obviously, it's also price. And the -- what was your next question, sorry? That was the balance sheet bit, right?

[Praveen Choudhary, analyst]

Yes, yes.

[Vikas Oberoi, executive]

Okay. I'll let Saumil take over.

[Saumil Daru, executive]

So a pretty interesting challenge in terms of capital allocation. From our perspective, the only thing that as developers that comes in, is the lumpiness that comes in when you're doing a land acquisition. So you keep -- like an individual, you keep saving, and then when you get one chance which comes in is when you go for it. So as far as construction costs are concerned, those usually and very typically get managed out of the cash flows itself as far as resi is concerned.

So where we also end up doing a little bit of borrowing and that is strategically is using bank funding for doing construction of the annuity assets. So that is how we would want to typically look at it. You would be aware that the Reserve Bank does not permit the commercial banks to lend for buying land. So any which ways, your sources of funding available for buying land then either get restricted to equity or the bond markets. So we have to keep toying between that.

As I said, the construction cost is managed. As far as the return of capital is concerned, I think it would be a fair amount of time before we kind of get to that situation. In all fairness, if you look at it and despite the balance sheet being very strong, we still have net debt.

So I would prefer to look at that bit a lot -- I mean, a lot, lot later. But considering the kind of plans we have for what we intend to do around CapEx and for some of the transactions that we are looking at in the pipeline, we believe that we will always be able to deploy the cash that we generate in our own business.

If you look at the kind of ROC and everything that is now showing up on the financials, and everything that we are doing at is now -- everything that we are doing and that we have done is now contributing to the P&L, whether it be Three Sixty West, whether it be Commerz III or pretty soon, it will be the Sky City Mall, which will also start coming in.

So all the capital employed is also generating returns. And we believe that if we are able to reinvest the cash flows that we are generating, that should happen at a healthy rate of compounding. So I think return on capital is a long way away. The other two bits I believe -- I hope I have answered your question.

[Praveen Choudhary, analyst]

Yes. Very clear, Saumil, and thank you, Vikas, for explaining the first question as well. Can I check when I last time checked Three Sixty West, by the way, it's super impressive building and the units. The other tower, apparently, those are even bigger floor plate. When will they be launched? Or are they already ready to be sold?

[Vikas Oberoi, executive]

So our show apartment there is getting ready. We should be ready with that by September. Our partner has sold a few flats there. So there is definitely traction. In fact, it's equally good, or I would probably consider it to be a little better than the other towers that are already selling. One, we have made our show apartment. And given a peek into how people can use this 15,000 square feet of carpet area, I think you will see a lot of sales happening on that account also.

[Operator]

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

[Pritesh Sheth, analyst]

First question is on the leasing. So we had a very healthy traction now in Commerz 1 with almost like -- I think it's almost leased out, Commerz II with 93%. What should we expect from Commerz III? We have obviously read few transactions in media, but what would be the expectations in terms of leasing by end of this year, considering the interest that you are getting right now?

[Vikas Oberoi, executive]

Yes, Pritesh, Vikas here. Yes, absolutely correct. We are ourselves very pleasantly surprised with the traction we've got probably at the end of this year. I wouldn't be surprised if we are at 99% or even 100% leased out between all three buildings. That's the confidence my leasing team or the CEO of our leasing business is talking about.

So yes, I mean, the buildings turned out really well. More than 50% is being occupied by -- or close to 50% is occupied by Morgan Stanley. And we have other very good tenants for Commerz III. So all in all, really leasing looking very good, very, very good.

In fact, at some point, I'd love for you all to come and have a look at what we built. It is the tallest commercial building in the city or in the country. And really, with 52 elevators, really state-of-the-art, designed by Woods Bagot out of New York, this building could be anywhere in the world. So I would love to show any of you.

[Pritesh Sheth, analyst]

And considering we don't have too much of vacancy right now in the first two towers and healthy pipeline for Commerz III, are we looking to -- I mean starting to ask for a better rentals in Commerz III versus our usual run rate of around 250-odd per square feet? Are we looking to better that in terms of rentals as well? Or for now, the focus would be on leasing it out?

[Vikas Oberoi, executive]

So frankly, our focus is on getting the right tenants. We have got really marquee tenants. If you offline will discuss with the team, they'll be able to tell you, for us, that's a bigger kick, and it gives us pride. It also like retains the value or enhances the value of the building that one has already built. So focus will be on that. Increase in rent will be a byproduct. We are not -- obviously, like we'd rather choose a good tenant over a higher rent, both if we get will be most welcome, but that's where we are for now.

[Pritesh Sheth, analyst]

So that's helpful. And on the Sky City Mall, any initial leases that we have signed and what sort of occupancy you will be starting at for that mall?

[Vikas Oberoi, executive]

So as far as leasing goes, I feel we will be probably 80%, 90% leased within this year itself. And most of it will be ready. Some of them will be in their fit out depending on the size and all that. But that mall is -- got its destiny of its own. And really, I'm very pleasantly surprised with the traction, with the quality of people we are getting there. And again, this is one place I'd love for you guys also to come and visit and see how well that's turned out, both from design and finish and the feel of that, it's got a very different energy.

[Pritesh Sheth, analyst]

Sure. And just one last on Glaxo. What was the thought process behind moving to mixed use commercial sort of a project versus earlier planned residential? Is it -- since we have that Adarsh Nagar project as well, which would be coming up, was that the thought process behind doing this -- keeping this as a purely commercial and doing a residential there or something else?

[Vikas Oberoi, executive]

With the assets that we already have and are being leased out, we see anywhere between INR 1,200 crore, INR 1,300 crores, INR 1,400 crores of rent already coming in. If we put this in, we can bump this up by another INR 800 crores, INR 900 crores, probably even more.

So this -- the assets that we have in our hand gives us a clear visibility of anywhere between INR 2,000 crores and INR 2,300 crores of rent from these assets. So it's something that really we feel good about. It's a great location. This way, we get to retain the asset.

And again, having built the second mall and the kind of traction we got, we feel we can really give the city a state-of-the-art, high-end mall and another office building that will really stand out. We want to make a marquee building. I feel all these things put together kind of are compelling us to do what we are just discussing.

[Operator]

The next question is from the line of Kunal Lakhan from CLSA.

[Kunal Lakhan, analyst]

Just on -- just a follow-up on an earlier question. As of June, how much area in Commerz III is leased out?

[Vikas Oberoi, executive]

So we have about 70% leased out. And a little more than 70%, I guess. But again, we are in advanced talks with people. We are very confident by the end of this year, we will be done with all leasing.

[Kunal Lakhan, analyst]

Sure. Understood. My second question was on our Mulund project, the traction there, again, like considering it's a completed project, the traction remains quite soft. I mean, we have close to about 700-odd units unsold there. What is the strategy there? And what kind of timeline you're looking at to monetize that?

[Vikas Oberoi, executive]

So we are only waiting for -- we've got part OC, rather OC for the project that we had launched. We now are getting balance occupation certificate. One of the buildings we should probably get it within this week or early next week. Once that happens, we'll open it up for sales. In fact, Mulund has been probably really very well performing, and we are actually very happy with it.

[Kunal Lakhan, analyst]

And by when do you think you'll be able to monetize this inventory?

[Vikas Oberoi, executive]

Again, so Mulund and Borivali both give you a kind of a sales run rate when they were under construction anywhere between INR 800 crores and INR 1,000 crores a year. And let's say, now with these buildings ready, I feel the run rate will only go up.

And unlike Borivali, we don't have additional phases coming out here though we have a small component of commercial there. But by and large, like I said, that we should be able to sell the rest of the inventory in the next 2 years, I guess. And this is all like inventory build, paid for. So in a way, it's money.

[Kunal Lakhan, analyst]

Understood. And my last question is on -- last quarter, you had touched upon or rather given some updates on Tardeo and Peddar Road. Any further update in terms of approvals there or in terms of launch timeline?

[Vikas Oberoi, executive]

No, it's work in progress. Like I said that for this coming festive season, we are focusing on our Pokhran Road, Thane, we are focusing on a tower in Goregaon and we are looking at a tower in Borivali. So these are set for the coming festive season. And everything else is work in progress, they will start.

[Kunal Lakhan, analyst]

Anything in particular on Tardeo and Peddar Road, like next fiscal or subsequent fiscal?

[Vikas Oberoi, executive]

Should be. I mean, like I don't want to comment. It could be the last quarter of this year, it could be first quarter next year. But that's about it. So it falls within that gambit.

[Operator]

The next question is from the line of Dhruvesh Sanghvi from Prospero Tree.

[Dhruvesh Sanghvi, analyst]

So I just wanted a little bit more clarity in terms of the launching because I missed the first 5 minutes and you would have done it. If you can just give us a broad road map on launching apart from the last comment that you made about Borivali, Goregaon in terms of Thane and the other smaller projects that you have? And any update on the Worli GSK additional land that you -- I mean, it is there. We originally thought about a mega mall there, but it is on abeyance for some time. So some help there. Yes, that's the only question.

[Vikas Oberoi, executive]

Okay. So yes, Dhruvesh, you are right, we did answer. In fact, we are looking at a tower in Goregaon, a tower in Borivali and a couple of towers in Pokhran Road for the festive season. So this is as far as the launch goes. With regards to Borivali -- sorry, with regards to Worli, we are looking at starting that project. We want to now build a mall, an office building and a very small hotel on top just to kind of brand it and that's really what we intend to do.

[Operator]

Ladies and gentlemen, due to time constraint, we will take that as the last question. I would now like to hand the conference over to Mr. Oberoi for closing comments.

[Vikas Oberoi, executive]

Thank you all for taking time out for this call. We really look forward to hearing from you on an ongoing basis. Please feel free to reach out to our investor relationship team and -- when you have any questions, of course. And thank you again. And like I said that would love to have you guys visit some of our sites. Again, please connect with our IR team and they'll organize the same for you. Thank you, and have a good day ahead.

[Saumil Daru, executive]

Thank you.

[Operator]

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