Recommendation form Residential & Commercial Project Industry
This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.
OBEROI REALTY : PICKING UP PACE
HERE IS WHY
β Favourable economic conditions
β Increase in demand for realty space
β Strong cash flows generated
Oberoi Realty has been a big name when it comes to the realty sector in India. It develops residential, commercial, retail and social infrastructure projects. Mumbai has been the home for this company and it has completed 42 projects across the city, aggregating about 11.89 million sq. feet of space. It had a tremendous 45.31 million sq. feet of construction area under development as of March 31, 2021. The company reported consolidated net sales of Rs. 2,052.6 crore in FY21 compared to Rs. 2,237.63 crore in FY20, signifying a de-growth of nearly 8.26 per cent.
The pandemic hit the economy hard in FY21 and its effect was seen on the real estate sector as well. Most of the revenues were generated in the last five to six months of FY21 when the lockdowns were eased post September 2020. The company’s EBIDTA stood at Rs. 1,038.4 crore in FY21 as against Rs. 1,096.32 crore in the previous year, a decline of over 5.28 per cent. However, the company has a high EBITDA margin of 50.58 per cent, which grew by 160 bps from the previous year.
The bottom-line showed resilience as thePAT witnessed an increase of 7.7 per cent from Rs. 683.4 crore to Rs. 736 crore from FY20 to FY21 respectively. The PAT margin too soared by 530 bps to 35.8 per cent, which is quite a show. A solid jump of around 309 per cent can be seen in the cash flows from operating activities increasing from Rs. (248.24) crore in FY20 to Rs. 519.25 crore in FY21. The company’s new launches during the year in the residential segment in Goregaon and Borivali received huge response from homebuyers
In its annuity portfolio, it leased 1.1 million sq. feet in Commerz III, an upcoming commercial building, making it one of the largest office space transactions in India. Net sales for the quarter stood at Rs. 284.25 crore in June FY22, down by 64 per cent QoQ but a growth of 140.8 per cent YoY. Its EBITDA exclusive of other income is at Rs.124.87 crore, down by 66.5 per cent QoQ basis but up by nearly 115.5 per cent YoY. The quarterly net profit decreased to Rs. 79 crore by 72.44 per cent sequentially but increased by nearly 200 per cent YoY.
As far as the returns are concerned, the returns on capital are usually low which is not unique to most realty businesses. The ROE stood at 8.18 per cent while the ROCE was at 9.47 per cent. The company has a manageable debt-to-equity ratio of 0.16. Investors need not worry about the net income being eaten away by interest expenses. The industrial outlook for the realty sector is positive which is greatly influenced by the macroeconomic factors. It’s hard to think of an economic variable that bears no impact on realty.
The lower interest rates in India have attracted huge demand in infrastructure building and realty space. Mumbai Metropolitan Region (MMR) and Pune are driving the housing property sales in India, led by lower interest rates and lower stamp duty which is 3 per cent, below from the pre-pandemic level of 5 per cent. The Indian real estate sector is expected to grow with CAGR of 19.5 per cent from 2017 to 2028. Above all, what makes this sector interesting is that whatever it cannot sell today can be sold later. By virtue of all such factors, we recommend our reader-investors to BUY the scrip.
