Oberoi Realty – a Good Investment Bet for Medium and Long Term

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Oberoi Realty Second Quarter Results

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(in Cr.)  
Net Profit
Cash EPS

Oberoi Realty Share Price Movement

Weekly H/L
Monthly H/L
52 Weeks H/L
( 25 Oct 10 )
( 1 Mar 11 )
Delivery / Var+ELM %

Oberoi Realty Share Price Movement


Mumbai, the Real Estate Capital of India

Q2 results not satisfactory

Oberoi Realty has not produced a good results for the quarter ended 30.09.11 as compared to the quarter ended 30.06.11. Revenue has increased from Rs.79.69 crore to Rs.107.12 crore. Revenue for the whole year 2010-11 was at Rs.389.83 crore. Net profit dropped from Rs.93.83 crore to Rs.54.80 crore. Net profit for the whole year was at Rs.170.56 crore. Operating profit margin dropped from 151.15% to 76.14%. Net profit margin dropped from 117.74% to 51.16%. The company is in the realty sector in India. The shares of Oberoi Realty are traded in the Indian stock markets at Rs.217.50 now (Bombay Stock Exchange 18.11.11). The highest price recorded by the shares of Oberoi Realty in the last one year is at Rs.306.60 (25.10.10) and the lowest price is at Rs.210 (01.03.11). In other words, the present market price of Oberoi Realty is close to its lowest price in the last one year. This gives a temptation to the investors to buy the shares of Oberoi Realty at the current market price. Is this temptation justified? Let us analyse.

Three premium projects on hand

If we compare the results of second quarter with that of the corresponding period of the previous year, the results are good. Revenue increased by 31% and the net profit increased by 17%. The company has also a sizeable land bank. The company executes its projects in time without any cost overrun. This shows the efficiency of the company. The company has three premium projects in hand in Mumbai, the cream of the realty sector in India. The company is not in a hurry to exhaust its land bank. It is scouting for premium opportunities to use its land bank judiciously for maximum gains. The gains from the company’s projects will start adding up to its cash kitty in two to three years time.

Buyers are scared by rising home loan interest rate

Realty sector is not doing well in India. The sector is suffering from want of demand due to continuous rise in interest rates effected by RBI for controlling inflation. Prospective buyers of properties are scared away by the ever rising home loan interest rate. But Oberoi Realty has managed to survive to some extent even in this depressed scenario. There is another unique feature for Oberoi Realty. It is a zero debt company. A zero debt company among the real estate players is a rare case. Another unique factor that separates Oberoi Realty from the rest of its peers in realty sector is that Oberoi Realty is a cash rich company. It has built cash pile of Rs.1560 crore. The company can use this huge cash for land acquisition or project expenditure.

First results after listing in the stock exchanges

The company’s Oberoi Mall contributed around Rs.18 crore to the revenue for the quarter ended 31.03.11. The company launched its maiden hospitality venture called Westin Mumbai Garden City in May 2010 at Goregaon in Mumbai city, the financial capital of India. It contributed a revenue of around Rs.27 crore for the quarter ended 31.03.11. The company reported its first annual results after listing in 2010-11. The company has ensured a steady rental income through high occupancy rates for its retail projects and office space.

Revenue increases by rent contribution

Real estate sector is cyclical and a company may see many ups and downs in it. But Oberoi Realty has managed the risks prudently through prudent land acquisition and following a policy of ‘aggression with caution’ in its dealings. Oberoi Realty has a reputed name in the Mumbai suburban real estate market. The company is also in the business of developing land owned by others on a revenue sharing basis. Some examples of this type of business by the company are Commerz-1 (0.38 million square feet of commercial space), Oberoi Mall (0.55 million square feet) and Westin Hotel (0.36 million square feet). These properties have contributed revenue of around Rs.110 crore or approximately 10% of the company’s revenue in 2010-11. By the year 2013, Oberoi Realty expects to lease properties of space of area 5.34 million square feet. Whenever land prices decline, Oberoi Realty jumps into the opportunity and builds up its land bank. The company declared a dividend of Rs.1 for the year 2010-11.

Buys back ICICI Venture’s stake

Oberoi Realty has appointed Samsung C&T Corporation as its general contractor for the mixed use, high rise and iconic project in Worli, Mumbai to be developed under a joint venture entity called Oasis Realty. This joint venture company has been formed between Oberoi Realty and Sahana. This has heralded the entry of Samsung C&T Corporation into the realty space. The project is scheduled to be completed in four and a half years time. Oberoi Realty has purchased ICICI Venture’s 50% stake in I-Ven Realty. I-Ven Realty is a 50:50 joint venture between ICICI Venture and Oberoi Realty. After this purchase, I-Ven Realty has become a wholly owned subsidiary of Oberoi Realty.

Good investment for medium and long term

The shares of Oberoi Realty at the current market price of Rs.217.50 should be acquired by the investors for medium and long term investment, though short term gains are not ruled out once the market starts moving up. The reasons for the recommendation are:

  • The company is a cash rich company and so is in a position to take advantage of a decline in land price to add land to its bank
  • The company is prudent in selecting only premium projects
  • The company is operating in Mumbai real estate market. Mumbai is the financial capital of India
  • The company’s brand name is well known in Mumbai real estate market
  • The company’s leased properties are contributing sizeable revenue to the company’s cash kitty
  • The company is a zero debt company and has no interest expenditure
  • By 2013, the company’s cash kitty will increase sizeably because of the rent accrued through is leased projects
  • The company has an efficient management

The company’s share price is close to is lowest price in the last one year

Oberoi Realty is an Indian Real Estate Company

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