Oberoi Realty Limited (NSE:OBEROIRLTY) Q1 FY23 Earnings Concall dated Jul. 18, 2022
Corporate Participants:
Vikas Oberoi — Chairman & Managing Director
Analysts:
Kunal Lakhan — CLSA — Analyst
Saumil Daru — Director of Finance
Puneet — HSBC — Analyst
Sameer Baisiwala — Morgan Stanley — Analyst
Parikshit Kandpal — HDFC Securities — Analyst
Parvez Akhtar Qazi — Edelweiss Securities — Analyst
Pritesh Sheth — Motilal Oswal — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to Oberoi Realty Q1 FY23 Earnings Conference Call. We have Mr. Oberoi, the Chairman and Managing Director of the company, and and Mr. Saumil Daru, Director of Finance of the Company is with us for the call. Please note this call will be for 30 minutes and for the duration of this call, all participant lines will be in the listen-only mode and the conference will be recorded. And the transcript for the same may be put up on the website of the company.
[Operator Instructions]. Before I hand the conference over to the management, I would like to remind you that certain statements made during the course of this call may not be based on historical information or facts and may be forward-looking statements, including those relating to general business statements, plans, strategy of the company, the future financial condition, and growth prospect. The forward-looking statements are based on expectations and projections and may involve a number of risks and uncertainties and other factors that could cause actual results, opportunities, and growth potential to differ materially from those suggested by such statements.
Mr. Oberoi, the Chairman and Managing Director of the company, thank you, and over to you, sir.
Vikas Oberoi — Chairman & Managing Director
Thank you. Good morning, good afternoon, good evening to all of you as per the time zones you have logged in and welcome to the conference call Q1 FY 2023 results and business update. Thank you all for taking time out for this call. We’re happy to see business back as usual and hope to have a great year across all our portfolios, be it residential, retail, commercial, and hospitality. Despite various dynamics at play in the economy such as inflation, rising costs in supply chain, we, at Oberoi Realty, have started off with a good year with a strong booking and strong bottom line.
Before we begin, I would like to share with you a few quick business updates. I’m happy to announce that we have received occupation certificate for 360 West and are looking forward with robust sale. We have also crossed INR5,000 crores in consolidated sales in our Sky City project, with a healthy sales velocity. As is evident, we are witnessing a turnaround in hospitality. We’re maintaining our margins in the residential and steady recovery in retail projects. With this, I would like to open the floor for question-and-answer and Saumil and I will both be very happy to answer your questions. Thank you.
Questions and Answers:
Operator
Thank you very much. [Operator Instructions]. First question is from the line of Kunal Lakhan from CLSA. Please go ahead.
Kunal Lakhan — CLSA — Analyst
Yeah, hi, thanks. Vikas, first question was on your Worli project again. So, we have received the OC now, and I can see there is some balance collection of about INR1,000 odd crores there. Two parts to the question — firstly like when do you expect this INR1,000 crore to [Technical Issues] I mean, I’m sure you’ll be raising the demand.
Operator
Sorry to interrupt you. You voice is not clear.
Analysts:
Kunal Lakhan — CLSA — Analyst
Yeah. Is it better now?
Operator
Yes.
Kunal Lakhan — CLSA — Analyst
Yeah. So my first question was on whether — when can we expect the INR1,000 or INR1,100 odd crores from Worli to come in our books. And secondly, considering that we have sold here inventory about INR2,600 crores, and we’ve always had a waterfall structure in terms of sharing the receivables, when — how do you think the future sales get split between us and the partners going ahead? That’s my first question on Worli.
Saumil Daru — Director of Finance
So, Kunal, just quickly jumping in before Mr. Oberoi answers, just to clarify the total booking value in Three Sixty West is about INR2,684 crores and the amount collected is already some INR2,519 crores. So, that’s about INR150 odd crores to be collected and not INR1,000 odd crores. That’s all.
Kunal Lakhan — CLSA — Analyst
Sure, sure, thanks for correcting. And in terms of incremental cash flows from Worli now, how that gets split?
Saumil Daru — Director of Finance
Okay, so Mr. Oberoi if you could answer that?
Vikas Oberoi — Chairman & Managing Director
Hi, firstly, very excited that Three Sixty West has got occupation certificate. We have close to 70 apartments that are sold. A lot of them have done their interiors. They move in. What is important for you guys to note is that this came in a day before our deadline. So, we are within the timelines, number one. Number two, as far as the split goes, our document talks of 80% of the money comes to ORL until ORL receives all the investment that they have done in the project and 20% will continue to go to the partner. And once we have recovered, there is a catch up on the 20% that the partner has taken and from then on, there is a split basis the agreement. And yeah, so that’s how it is.
Kunal Lakhan — CLSA — Analyst
Sure, that’s helpful. My second question was on the cash flows that you’ve shared in your presentation. Your investing cash flow is showing about INR1,078 odd crores negative, could you just help us understand what is that?
Vikas Oberoi — Chairman & Managing Director
Saumil, this is yours.
Saumil Daru — Director of Finance
Yeah, so, Kunal, hi, basically the investing cash flow states kind of two things. One is, they reflect the treasury activities and they represent the mutual fund investments. And the second bit is the investment which goes into the capital assets so, which is the construction of Commerz III and basically what we can say the Sky City mall. So, that’s what this represents.
Kunal Lakhan — CLSA — Analyst
So, we haven’t seen much of increase in the CWIP or gross block as such so would it be fair to assume this is all [Speech Overlap]
Saumil Daru — Director of Finance
Predominantly is treasury. If you also see the short-term investments below, it shows about INR932 crores in that same cash flow?
Kunal Lakhan — CLSA — Analyst
Yeah.
Saumil Daru — Director of Finance
Yeah, so INR932 crores is a component of that INR1078 crores.
Kunal Lakhan — CLSA — Analyst
Yeah, understood. Thank you so much. I’ll come back in the queue.
Saumil Daru — Director of Finance
Thank you so much, Kunal.
Operator
Thank you. The next question is from the line of Puneet from HSBC. Please go ahead.
Puneet — HSBC — Analyst
Yeah, thank you so much and congratulations on good momentum on the sales side. Can you talk a bit about what’s the progress on Thane, Peddar Road and also share broad economic interest and cost and realization estimates there?
Vikas Oberoi — Chairman & Managing Director
Hi, Puneet, good afternoon. Thane, like I said that we are planning to launch in the festive seasons. We are ready with our show apartment and we believe that Thane market is good market. We have mapped sales of some of the prominent developers and they look very, very encouraging. Peddar Road again is work in progress, a little too early for us to get into exact numbers. We are still on the drawing board. Once we have clarity, we will come back to you, maybe in a quarter or two.
Puneet — HSBC — Analyst
So any payment for Kolshet Road and Peddar Road hasn’t been done so far, right?
Vikas Oberoi — Chairman & Managing Director
Yeah, yeah — no, payments have been done for both. Whatever was our component to be paid has been paid. One tranche for Kolshet has been paid and the entire amount for Peddar Road has been paid and these are both either revenue share or area share, I mean no input on cost from the land owners. It’s a very refined and a unique joint venture. We personally feel very happy and proud of that. That’s it. So, once we have more clarity, we will be able to tell you. We do have some numbers on Kolshet, but again like I said, a little too premature. We are still on the drawing board. What we did as a business plan when we purchased or rather when we got into this transaction was one, that we want to come to the market with a filtered version, with something much closer to what you will see it play out than very early business assumptions.
Puneet — HSBC — Analyst
Okay. So, revenue share and area share are still to be frozen in some sense.
Vikas Oberoi — Chairman & Managing Director
No, no they are all frozen.
Puneet — HSBC — Analyst
Can you share what goes in [Speech Overlap].
Vikas Oberoi — Chairman & Managing Director
Like I said [Speech Overlap] a percentage of the gross area that we will generate. There is percentage of the gross revenue we will generate. So, we are still working on it. We are still trying to get to the accurate numbers and then we would rather tell you instead of we telling you. We have a conservative number, but that really doesn’t help. We want to be sure.
Puneet — HSBC — Analyst
Understood. And any progress on the Glaxo Worli land? What is the plan now? Last time you talked about still trying to think about commercial space. Have you frozen anything like that?
Vikas Oberoi — Chairman & Managing Director
Correct, correct, correct. So like I said that we — even the last time I said that we were all set to do commercial before COVID broke through, then we realized that, no, residential is a better bet because, all across, residential did better. Eventually, even the mall business and commercial is back. We do get a higher SAR when we build commercial, but a lower realization in terms of per square foot revenue and residential, we get higher realization over lower SAR. So, we are still contemplating. Both our plans are ready, but we haven’t been able to take a call. We still continue to contemplate. And we were also waiting now that Worli one is built is being sold, this clearly would not be a competition because even if, let’s say, if I’m going to do residential, it would be three, four years at the least into making. Again, we are spoiled for choice and that’s the only reason we are not able to kind of decide, but we should do that soon.
Puneet — HSBC — Analyst
Understood. And in the current numbers, we are also seeing quite nice uptake on your realization. Do you expect this realization growth to continue into the end of this year as well.
Vikas Oberoi — Chairman & Managing Director
I genuinely feel that this should continue because whatever was ready in the market has pretty much been absorbed. There is very little that is under construction and even if there is a huge issue of acceptability from the buyer’s point of view, be it the brand name, be it the ability to deliver quality, deliver on time, forget both, actually deliver also. So given all the uncertainties in under construction and commodity cycle hitting an all-time high, even though there is a little bit of a correction, but still continuing to go high, I see it’s imperative for developers to increase price because their input costs are going to go up. And so I feel that you will always see realization go up even for the ready product. And if they don’t, then they fall into their own trap of not being able to deliver to their commitment.
Puneet — HSBC — Analyst
Understood. And the last one is, any plans for another phase launch in Goregaon.
Vikas Oberoi — Chairman & Managing Director
Goregaon, we have launched two buildings. Work is on for four and we have seen tremendous velocity. We were pleasantly surprised when we started the second one, it did three to four times of what we wanted. The good news here is that we don’t have pretty much a single square foot that is ready and for sale, maybe one off flat, literally like that. Given that it’s become a favorite destination at least for people to stay, we see no reason why we would not launch more phases in the coming quarters. It may not be the immediate next; could be the one after that. But yes, I mean that’s really Goregaon is our cash cow, which we can literally turn the tap on anytime we like.
Puneet — HSBC — Analyst
So, we should look forward to another launch sometime this fiscal?
Vikas Oberoi — Chairman & Managing Director
Why not, why not, why not?
Puneet — HSBC — Analyst
That’s very helpful. Thank you so much, and all the best.
Vikas Oberoi — Chairman & Managing Director
Thank you, Puneet.
Operator
Thank you. Next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.
Sameer Baisiwala — Morgan Stanley — Analyst
Hi, thank you very much and good evening everyone. Quick question is on the demand scenario. Vikas, I copy your initial statement, but given the — what’s going on in the market, the volatility, inflation, and now these rising mortgage rates, are you seeing any sort of slowdown in terms of footfalls or visits, etc.?
Vikas Oberoi — Chairman & Managing Director
Hi, Sameer. Sameer, frankly, I’m not seeing any slowdown and probably one of the stronger reasons is there is clear shift from these buyers towards — I mean they are gravitating towards better quality developers. So, I clearly see our numbers continue to increase. I would like to believe what you’re saying is true, but this must have been to for developers who don’t have a good brand name, who have not delivered quality and in time. They are losing customers. So, even if, let’s say, overall market is shrinking, our share in the market continues to increase. If what you’re saying is true, this is the only logic I can apply because we don’t see any drop in demand. I mean we continue to see huge momentum. In fact, for me, I feel that construction cost is bound to go up. So whoever will not book today and not book with a reputed developer who is known to deliver as promised, will probably lose out because it’s not going to be easy for people to continue to hold these prices; even if there is a slowdown in demand because you can’t be selling at a loss.
Sameer Baisiwala — Morgan Stanley — Analyst
Thanks for this. And Vikas, the second question is on pricing, and especially for Mulund and Borivali, have you taken any price increase over last three to four quarters and your thoughts on this?
Vikas Oberoi — Chairman & Managing Director
Sameer. We have only removed certain things like — what we did was we were giving let’s say developers of venture and [Indecipherable] venture. So what we have done is we have — I mean some of these were at a higher price. So, we’ve just changed the category and whatever was at a lower price pushed into a higher price so on and so forth. So, we have done a little bit of tweaking — price increase by 5%, 7%, 10%, nothing more than that, nothing substantial. And it’s all — it’s real money for us, but it’s optic for the world. So, we’ve been able to play around with the price by 5% to 10%, which looks optical for the world, but it’s actual real money for us, and in a very, very simple interesting way.
Sameer Baisiwala — Morgan Stanley — Analyst
Okay. This contrast versus what you have done in say Worli or Goregaon, but you have taken the headline rates up and quite meaningful?
Vikas Oberoi — Chairman & Managing Director
Correct, and with no resistance, with no resistance. That’s the most amazing part.
Sameer Baisiwala — Morgan Stanley — Analyst
Wonderful. That’s very clear. And final question, Vikas, is just a broader one, now that there has been a change in the Maharashtra state government, so anything that you can — we can expect on the regulatory side or any implication for the sector or for the company.
Vikas Oberoi — Chairman & Managing Director
Sameer, you know we stay away from this [Indecipherable] literally and we are completely agnostic to who is running the government and I’m sure everybody means well. Having said that, I feel one thing for sure that the center state alignment will help the state. We love the fact that now bullet train will become a reality very much sooner than what would have happened earlier, so huge positives for the state to be simply aligned with the central government. And so this is one. I feel going by our past track record, we see that this government also is going to come up with a very positive like pro-people policy and I think the state is bound to do well. I think it’s really bound to do well. And we are like literally 2.5 years in and another 2.5 years to go. So I think any political party would like to really keep these 2.5 years and especially because these guys have got only 2.5, they want to work as if for the five-year term, they will go all out.
Even something like the Versova-Virar sea link, I was reading that the central government is ready to do it. State government wants it to do it. Earlier, it would be that I wouldn’t share my credit with the central government and so on and so forth. So I would say that in all, I think we are much better off. So it’s a positive.
Sameer Baisiwala — Morgan Stanley — Analyst
Okay, thank you very much.
Vikas Oberoi — Chairman & Managing Director
Thanks, Sameer.
Operator
Thank you. Next question is from the line of Parikshit Kandpal from HDFC Securities. Please go ahead.
Parikshit Kandpal — HDFC Securities — Analyst
Hi, Vikas, congratulations on very good quarter. So my first question is on Three Sixty West. So if you can just highlight how much price increases, they can bear? How is the prospect pipeline looking because [Indecipherable] looks towards north of 20 apartments. If you can just touch upon these [Indecipherable] first.
Vikas Oberoi — Chairman & Managing Director
So if you see — actually if you see the entire area and probably we have the best product in the city. I don’t want to sound pompous, probably the best product in the country and among the best in the world. If you see buildings that are not even at par with us are selling at anywhere between INR100, 000 and INR110,000 on carpet. We in turn believe that we should be a little higher than that ballpark. So anyway, between INR100,000 and INR120,000 on carpet is what we would love to aim at and fingers crossed. One other thing I want to tell everybody is that we have got our entire building approved under the 2034 DCR. This means that all the free area that we are taken, the decks, they all taken in FSI and the occupation certificate is as per the 34 DCR. It is like huge, not that anything wrong with the earlier one, but today, our carpet area also has gone up big time. So this, all this really helps us really market the product better and get a better realization. And you know at the back of all this and with what is happening in the vicinity, we tend to believe that we could get something like this.
Parikshit Kandpal — HDFC Securities — Analyst
Okay, great, sir. So any views on the challenges with the partners currently that will have any impact on the project sales.
Vikas Oberoi — Chairman & Managing Director
Sorry, sorry, come again [Indecipherable].
Parikshit Kandpal — HDFC Securities — Analyst
Any views on the challenges, which your partner is facing in this project and [Indecipherable] see.
Vikas Oberoi — Chairman & Managing Director
Not really, I mean, at least nothing. I mean you know this is a second project, really no.
Parikshit Kandpal — HDFC Securities — Analyst
Okay, and just second question on the business development. Vikas, we have been talking for many quarters now on the non-MMO story and even in the last call you highlighted, even you actively looking at setting up like offices and malls within non- MMR. So any update are we looking to break ground this year, potentially if you can highlight anything we can hear from you on this in the second half and any substantial on this front.
Vikas Oberoi — Chairman & Managing Director
I am very, very keen and I am continuing to be doing that. I want to get in the right project at the right time at the right price. For me, it’s not about ticking the box. At the end of day, we put our dot on 100 years ahead for the company. We want to focus on the right things for us. These basic things are very important. Project outside Mumbai is a byproduct of this and so I would wait for the right project and only then probably go by doing this.
Parikshit Kandpal — HDFC Securities — Analyst
But anything likely getting close in this financial year, because last I think you’re more positive in the last quarter?
Vikas Oberoi — Chairman & Managing Director
I would say yes. But again like I said, I take these calls very seriously and I take my commitment really only very seriously. I’m a little skeptical in just committing a date, but I must tell you that we very rigorously continue to go after it. And as and when we get it, we will be there.
Parikshit Kandpal — HDFC Securities — Analyst
Okay, thank you. Those are my questions. Thank you.
Vikas Oberoi — Chairman & Managing Director
Thanks.
Operator
The next question is from the line of Parvez Akhtar Qazi from Edelweiss Securities, please go ahead.
Vikas Oberoi — Chairman & Managing Director
Hi, Parvez.
Parvez Akhtar Qazi — Edelweiss Securities — Analyst
Yeah, hi, Vikas, good afternoon and congratulations for a good set of numbers. Few questions largely from my side. First, what would be the completion timeline for the Borivali Mall and Commerz III? And second, when can we expect some inventory release in the [Indecipherable] deposits. Thank you.
Vikas Oberoi — Chairman & Managing Director
Yeah. So both these projects should be ready by next year March for fit outs. I think the mall should start its commercial activity pretty much in the next year, maybe towards the festive seasons. Our target is to get ready before next Diwali. And the same is with the Three Sixty West — sorry, sorry, same is with the Commerz III. We should be ready with Commerz III for fit out by March of next year and rent commencement within a year after that. And that’s our commitment also to tenants and we are pretty much on time. What was your other question, sorry? Okay, that’s the third phase of Borivali also, it’s there in the reckoning, again like Goregaon, Borivali also happens to be literally our cash cow. And whatever gets opened, gets sold very, very quickly. And yeah, so.
Parvez Akhtar Qazi — Edelweiss Securities — Analyst
Do we expect something to come up this fiscal?
Vikas Oberoi — Chairman & Managing Director
Sure, I mean why not? Yeah, we could do that. Again if you see Borivali like I said that it crossed INR5,000 crores of sale and continuing to do with great velocity. So we do hope, in fact, and we’ve done some fresh reconfiguration and I believe that the markets will love it. These are slightly bigger area apartments and we see there’s a huge push towards larger area, luxury and we are trying to bring that there now so — and with much higher realization. So huge positive, I would say. And we are looking at launching this within this financial year.
Parvez Akhtar Qazi — Edelweiss Securities — Analyst
Great to hear. Congratulations and all the best for future.
Vikas Oberoi — Chairman & Managing Director
Thank you so much.
Operator
Thank you. The next question is from the line of Pritesh Sheth from Motilal Oswal. Please go ahead.
Pritesh Sheth — Motilal Oswal — Analyst
Hi, thanks for taking my question and congrats on finally getting the OC for Three Sixty West. My first question is on similar lines with what Samee had asked earlier. On the impact of mortgage rates, so we see a drop in sales velocity both in Sky City and Maxima to an extent as well, not trying to be very critical, but particularly I would assume that these would be the projects where your mortgage mix would be comparatively higher versus the other projects. So anything to read into this drop in sales because of maybe some increase in mortgage rates, if you can highlight?
Vikas Oberoi — Chairman & Managing Director
Can I tell you, you’ll be very happy to know that we hardly have anything to sell in Maxima. So that’s point number one. There is no drop really. It’s like a clean sweep there On Sky City also, as the earlier question asked was when are you going to launch? We are left with probably 15% or 10% of the inventory that we had launched. So obviously, either these are very higher floors or something like that. And that’s why you see but even there, I mean you really see numbers. They are not like a drop in velocity and they are more to do with what is available and people are — I have a huge backlog of people wanting to buy the next phase when I launch. So lot of people are holding back. And then now, you also know that Sky City it is virtually near completion and we should be giving possession soon. People are waiting that all of it and take possession instead of being into a project for that. So, absolutely no drop in velocity as far as we are concerned. And for us, you will be surprised that we have been tracking people who buy our apartments. Most of them take a 10-year loan, repay it in three years. And so, cost of money in India is anyway very high and we hardly have any standard deduction for the interest at one [Indecipherable] so most people even if they’re taking loan, it a stop gap arrangement. So effective cost for them if it’s a 3-year loan doesn’t really work out to be much and these are things that one really needs to know. If our borrowing cost was way too low, then one would understand that increase in cost could hurt you in sales. But with interest cost anyway being higher and — so people don’t really want to borrow for too long, and I’ve seen that if I give an attractive price to people where they have to pay construction being planned versus banks [Indecipherable] or developers of venture, they’re happy paying developers with good repute, upfront money, as and when you build. They don’t want to pay for the credit because it’s anyway high. So a few hundred basis point also — forget 50, 75 but 200 basis points also I don’t see affect. Yes, the press [Indecipherable] peach and makes a lot about it because the government wants, why do they increase interest because they want to actually control inflation and they then want to send these signals in the market. So emotionally, yes, probably a few people get little rattled when interest rates go up, but by and large, we haven’t seen any impact on sales, not at least to ourselves.
Pritesh Sheth — Motilal Oswal — Analyst
Got it, that’s very helpful and I would agree to your point. Second question is on your existing vacancies in your Commerz I and Commerz II. Particularly, Commerz I, we have seen at least now 10, 11 quarters since we can see us [Indecipherable] high. And even there was a drop in occupancy for Commerz II as well, so any comments on when we should be able to lease that out again fully.
Vikas Oberoi — Chairman & Managing Director
Frankly both Commerz I and Commerz II were never literally our absolute focus. We realize that we with Commerz III will have a large portfolio close to five plus million square feet of leasable area. And hence, we now have business heads with an entire team looking after that and it’s just been a few months, you would have seen in social media that we have started doing revisits of all the IPC. We have a very customer-centric approach here. And we see very good traction here. And you will see that we’ve already started closing deals and in the coming month, I mean our internal target is that we will reach 100% occupancy within one and two in this financial year itself. So again, we’ve set these targets. We have a team now — completely focused team –we’re a very small team earlier. It was like business by the way for us. Now this is serious business for us. And we will make sure that we not only get the occupancies at high 90 but also push and become the first preferred destination for any customer.
Pritesh Sheth — Motilal Oswal — Analyst
Got it, thanks. That’s very helpful. Thank you and all the best.
Vikas Oberoi — Chairman & Managing Director
Thank you, again.
Operator
Thank you very much. Ladies and gentlemen we’ll take that as the last question. I will now hand the conference over to Mr. Vikas Oberoi for closing comments.
Vikas Oberoi — Chairman & Managing Director
Thank you all for taking time out for this call. We look forward to hearing from you on a regular basis. If you have any queries, please feel free to speak with our CFO or my Investor Relations team. And, we will be more than happy to answer all your questions. Thank you once again and have a great week ahead. Thank you very much.
Operator
[Operator Closing Remarks].