Shares of real estate developer Oberoi Realty Ltd hit a 52-week high on Monday, thanks to the company’s stellar June quarter performance. The highlight was a 52% year-on-year jump in consolidated net revenue to Rs.320 crore. The aggregate area booked by customers rose 87% year-on-year. All of this reflects strong execution by the company, which stands out when compared to the otherwise lacklustre Mumbai real estate market, where inventory levels are still high.
Although revenues rose sharply, a change in the revenue mix took a toll on operating margin, which was 870 basis points lower than the year-ago period. Revenues in the year-ago period had a larger component of projects, which enjoy higher margins. Even so, the company’s 52% consolidated operating margin is notches higher than Bloomberg’s forecast.
Another area where Oberoi Realty stands out among its peers is that it is not saddled with high debt. The company raised about Rs.50 crore through non-convertible debentures to replace high-cost borrowings and set aside funds for purchase of land parcels, if required.
That said, investors must take cognizance of the impact of the new Indian Accounting Standard norms on the firm’s revenues and profit in the coming quarters. Income from project sales of its newly launched project in Mumbai’s Worli where Oberoi Realty is a joint venture partner, will find its way only at the profit level to the extent of equity held in the project. It will not contribute to revenues. A note by Elara Securities (India) Pvt. Ltd explains that it has cut FY17 and FY18 revenue estimate by 12% and the operating profit estimate by 16% owing to the exclusion of the Worli project. However, it will not have an impact on cash flows.
Given Oberoi Realty’s better performance and comfortable balance sheet, it’s hardly surprising that its shares have outperformed the BSE Realty index by 46% in the past two years.