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Business News/ Markets / Mark To Market/  Oberoi Realty’s slowing capex plans may not bring much relief this year
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Oberoi Realty’s slowing capex plans may not bring much relief this year

While real estate sales are slow, rentals of commercial projects are likely to slip in the coming quarters
  • The postponement of capex should help conserve cash, which would shore up the company’s financials
  • Oberoi is not likely to cut prices to drive sales. The firm’s net debt has come down in the past two quarters due to better cashflows. This means there is headroom to raise cash. Pic: MintPremium
    Oberoi is not likely to cut prices to drive sales. The firm’s net debt has come down in the past two quarters due to better cashflows. This means there is headroom to raise cash. Pic: Mint

    MUMBAI: Slowing sales and execution at real estate developers are taking a toll on profitability. Oberoi Realty Ltd’s stock is grappling with the same lack of enthusiasm on the bourses for such companies. Its share dropped nearly 3% in trade on Thursday, and the road ahead looks bumpier.

    The company’s first-quarter revenue plunged a steep 80% year-on-year, reflecting the severe effects of the lockdown. Its zero revenue from malls and hotels shows that the segments have been hit harder. Some of these segments could remain below par for the next quarter or so, till things normalize. To top it, pre-sales of real estate have also been weak.

    “Q1 pre-sales were down 94% y-o-y to 24 cr with just 5 houses sold. While footfalls have risen, conversions are yet to follow and management expects a gradual pick-up. Detailed marketing push, including via digital & non-resident Indian channels, is planned," said Jefferies India analysts in a client note.

    While real estate sales are slow, rentals of commercial projects are likely to slip in the coming quarters. The postponement of capital expenditure should help conserve cash, which would shore up the company’s financials.

    On the positive side, Oberoi is not likely to cut prices to drive sales. Low leverage in its balance sheet would certainly help in these cloudy moments. Besides, the firm’s net debt has come down in the past two quarters due to better cashflows. This means there is headroom to raise cash.

    Another positive is that Oberoi has signed a deal for its office tower at Goregaon that could boost confidence in Mumbai real estate. “The lease covers 50% of the total leasable area of 2.8msf and is for a duration of 9 and a half years with rentals expected to flow in from FY23 estimates," said ICICI Securities analysts in a client note.

    Even so, the postponement of projects could conserve cash for now, but FY21 will in all likelihood be hard on the balance sheet. Mumbai’s luxury real estate market could be restrained for longer while the effect of the lockdown on malls could be protracted. It seems like the pressure on the stock may persist.

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    Published: 17 Jul 2020, 09:01 AM IST
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