Oberoi Realty stock hinges on how it reinvests cash flows

The stars are gradually aligning for Mumbai-focused Oberoi Realty Ltd. Pre-sales or booking traction in its ultra-luxury project Three Sixty West in Worli is improving, bringing some comfort amid high levels of unsold inventory.

In the June quarter (Q1FY25), Oberoi’s pre-sales rose 124% year-on-year to around ₹1,070 crore driven by healthy bookings in this project. It sold six units at Three Sixty West during the quarter (versus eight in all of FY24) for ₹480 crore, giving it an average realisation of about ₹1,28,200 per sq ft of carpet area. Management expects a similar sales run rate in this project in the coming quarters.

Pre-sales in residential projects at Borivali and Mulund kept up the pace year-on-year, but were weak sequentially. This, and a lack of new tower launches, hampered Oberoi’s sequential pre-sales performance. However, it plans to launch the Pokhran Road project in Thane and additional towers at the Borivali and Goregaon projects during the festive season this year. Projects at Gurugram, Adarsh Nagar in Worli, and Tardeo are set to be launched in FY26.

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Playing catch-up

Timely launches and speedy inventory liquidation is crucial for real estate stocks. But in the case of Oberoi Realty, the stock’s re-rating largely depends on how it reinvests cash flows from sold inventory. An Antique Stock Broking report noted that Oberoi has failed to capitalise on the residential upcycle in the past three years, but with significant land parcels at its disposal, project launches in FY25 and FY26 could help the company benefit from ongoing demand momentum in the sector.

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On the commercial side, rental income commenced from Commerz III in Q1FY25 and the project saw 54% occupancy. Sequentially, occupancy was flat at 93% in Commerz II, while it improved to 76% in Commerz I, and to 99% in Oberoi Mall. Management is upbeat on leasing trends and aims to fully lease out all office assets by the end of FY25. The launch of Borivali Mall has been delayed and is now expected in the second half of the fiscal year. Nonetheless, the company aims to achieve 80-90% leasing in this asset by the end of FY25.

If it meets its leasing targets, the company could see a better cash flow trajectory for its annuity portfolio. Higher rental income should in turn help fund expansion and consistent debt repayments. But some of these positives seem to have been factored into the stock, and the wait for crucial triggers continues. The stock has rallied 20% so far in 2024, lagging the Nifty Realty index, which is up around 38%.

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