The post-Covid period has seen residential and commercial realty as well as the hospitality segments take off strongly. With demand, especially in the more expensive real estate market, being robust and back-to-office norms bringing back occupancies, companies operating in these sectors have been beneficiaries.
As a large and established player in the ever-growing Mumbai Metropolitan Region (MMR) realty segment, Oberoi Realty has seen its stock rise healthily over the past few years.
At ₹2,065, the stock trades at 33 times its trailing twelve months’ per share earnings and 26 times its expected EPS for FY25, making it a reasonable bet for investors with a two-three-year perspective, especially given the elevated valuations (50-70 times) that most real estate companies trade at currently. The BSE Realty trades at a PE multiple of over 59 times.
Now, the stock is up more than 62 per cent in the last one year. Investors can buy small quantities at current prices and also accumulate on any declines linked to the broader markets. The recent corrective phase in the broader markets due to extended FII selling may provide entry points.
Robust traction in the upmarket residential segment, healthy occupancies in its commercial rental business and healthy financials are positives for the company.
Over the period FY22-24, Oberoi Realty’s revenues grew at 29.2 per cent compounded annually to ₹4,496 crore, while net profits rose at 35.6 per cent to ₹1,927 crore in FY24.
The momentum has extended to the first half of FY25, with revenues increasing 28.1 per cent year on year to ₹2,725 crore, while net profits rose 50.8 per cent to ₹1,174 crore.
Catering to the luxury segment
As mentioned earlier, Oberoi Realty is focused on the MMR. It has been around for more than four decades and has a track record of executing premium projects within stipulated timelines.
In the MMR region, the developer has completed and ongoing projects in Andheri (East and West), Worli, Thane, Mulund (West), Goregaon (East), Borivali (East), Juhu and Khar, among other areas.
The residential segment is the mainstay for the company and generates over 81 per cent of the revenues.
Oberoi Realty caters mostly to the luxury residential segment. Of the five projects that are currently part of its portfolio (ready to occupy, occupancy certificate received and ongoing), the per-sq-ft rate ranges from ₹31,000 to ₹39,000 – among the highest in the MMR region – barring one project where it is under ₹20,000.
This focus on luxury has helped the company maintain industry-leading margins. In FY24, Oberoi Realty’s operating margin was 53.6 per cent and net margin was almost 40 per cent. In H1FY25, operating margin rose further to 59.8 per cent and net margin to 41.9 per cent.
According to a report from Anarock, around 36,200 units were sold in the MMR during Q3 of 2024, accounting for 34 per cent of national sales volume. Besides, of the 26,000 units launched in the same period, a whopping 17 per cent was in the ₹2.5 crore-plus segment, while that in the ₹1.5-2.5 crore was 10 per cent. This shows the potential in the premium and luxury segments.
Other revenue streams
The company receives a little under 14 per cent of its revenues from rentals. Currently, in its portfolio, Commerz, Commerz II and Commerz III offer commercial spaces on rent. Rentals are growing at a pace faster than the overall company revenues (over 32 per cent growth year on year in H1FY25).
Occupancy for Commerz is at 80 per cent, while it is 93 per cent for Commerz II, as of H1FY25. Commerz III is slowly taking off and had 60 per cent occupancy, as of H1FY25, but was at 65 per cent for Q2FY25.
All occupancies are up sharply by 11-22 percentage points in the last year or so.
Oberoi Mall, another of its rental properties, had an occupancy of 99 per cent.
The rental business is extremely lucrative for the company, as the operating margin in the segment is north of 90 per cent.
Other minor segments include the hospitality and property management services divisions. The hospitality comes from The Westin Mumbai Garden City property. It has 83 per cent occupancy and revenue per available room (RevPAR) of ₹10,298, which is quite healthy.
Low debt
Oberoi Realty has a robust balance sheet. It has a debt-to-equity ratio of only 0.14 in H1FY25, down from 0.26 a year ago. The net debt to equity is even lower at just 0.02, down from 0.18 over the same period. The debt-equity ratio for the company is among the lowest in the industry.
The firm’s return on capital employed improved to 15.5 per cent levels from 11.08 per cent.