Oberoi Realty eyes expansion in weak market

Oberoi Realty eyes expansion in weak market

Mumbai: Property developer Oberoi Realty plans to expand its land holdings in key cities as debt-laden rivals struggling with rising costs and slowing sales look to cut assets, its managing director said on Tuesday.

Mumbai-based Oberoi, which is sitting on $350-million cash reserves after an initial public offering and steady sales in the last financial year, is eyeing projects in Delhi, Bangalore, Hyderabad and Pune.

“We are loaded with cash. When some of the highly leveraged players get desperate, that is going to be an opportunity for us. We will replenish our land bank," Vikas Oberoi told the Reuters Global Real Estate and Infrastructure Summit.

Property prices in major Indian cities have more than doubled over the past 18 months, but sales volumes are down almost 40% from a year ago as high prices and rising borrowing costs deter buyers.

Reserve Bank of India has been one of the most aggressive to tighten liquidity to curb inflation, raising rates 10 times since March 2010, including a 25-basis point increase last week.

Any further slowdown in property demand is expected to hit cashflows for highly leveraged real estate firms, which have also not been able to sell equity in a volatile stock market.

“Projects have already started trickling in, but obviously these are the early days of pain. Once it is unbearable for a lot of people, we will start getting land which is lot cheaper," Oberoi said.

The developer focuses on large integrated projects in Mumbai, which include premium apartments, retail space as well as hotel projects. It is currently developing 10 million square feet, but hopes to double this by March 2013.

The company, which listed in October 2010, reported net profit of 520 crore ($115.6 million) for the fiscal year ended March 2011, on revenue of 106 crore, with net profit margin of nearly 50%.

Looking for partners

Oberoi Realty, which counts Morgan Stanley and T Rowe Price among investors, is open to joint ventures and stake sales in individual projects although it is not looking to dilute further equity at the company level.

Oberoi, which partnered Starwood through its brand Westin for a hotel project in north Mumbai, is also scouting for global chains to manage and operate its second hotel at a 3.1-million sq ft mixed-use project in central Mumbai.

The company is in talks with several global hotel chains, including Starwood, Mandarin Oriental and Hilton, and hopes to finalise a partner in three to six months.

“Hotels is always a strategy, not a standalone business for us. It has to be within a complex, where the values will increase due to the hotel branding," Vikas Oberoi said.

The company is interested in buying a 125-acre plot in Thane, near Mumbai, where Raymond earlier operated a plant. He did not comment on valuations, but industry experts have estimated the plot to be worth about 2,200 crore.

Shares in Raymond jumped 4.1% after the news, while Oberoi shares rose 2.4%.

Shares in Oberoi Realty, valued at $1.7 billion, are down 8.5% so far in 2011, compared with a 14% fall in the main stock index and a 30% slide in the sectoral index .

Vikas Oberoi, who inherited the property business from his father and has now spent two decades in the sector, was ranked India’s 46th richest person by Forbes in 2010, with networth of $1.4 billion.

“We are in value creation and we want to be a company that will have constant income," he said. “I tell my investors that I am virtually a first generation entrepreneur. We made wealth for ourselves, and we will continue to do that."